In it semi-annual review of financial stability, the Reserve Bank of Australia (RBA) said around three-quarters of currently outstanding fixed-rate loans will expire by the end of 2023.
Assuming all fixed-rate loans roll over to variable rates, and variable rates increase by around 200 basis points, the RBA predicted that over 90 per cent of fixed-rate loans expiring in the next two years face an increase in repayments of up to 20 per cent.
The one quarter that have terms that expire beyond 2023 are predicted to face even larger shocks depending on how rates evolve over the next 24 months, the central bank said.
But the RBA is confident that repayments should be manageable for most, noting that many fixed-rate borrowers have accumulated substantial liquidity buffers during their loan term.
Touching on APRA’s macroprudential move late last year, the RBA judged that while the October increase in the interest rate buffer did reduce some riskier lending, the share of new lending at high debt-to-income ratios remains significant.
To help mitigate potential financial stability risks, APRA recently warned lenders to be “operationally ready” to implement limits on high-DTI, high-LVR, investor or interest-only lending.
Turning to record house price growth, the RBA acknowledged the possibility of future swings in prices but revealed that internal estimates suggest a 200 basis point increase in interest rates, from current levels, would lower real housing prices by around 15 per cent over a two-year period.
Financial institutions vulnerable
Acknowledging the growing risk of cyber attacks and their rising sophistication, the RBA said it is highly probable that at some point in time the defences of a significant financial institution in Australia will be breached.
Locally, there has been an increase in the number and severity of cyber security incidents of late, with data showing that around 55 per cent of reported data breaches of Australian financial institutions over the past two years have been malicious.
As such, the RBA warned that cyber attacks would not only create problems for the institutions concerned but could also undermine confidence in the broader financial system.
“It therefore remains critical that financial institutions and infrastructures have high resilience with the ability to quickly recover from a significant attack,” the RBA said.
