The Australian banking system has continued to perform better than those in many other countries, consistent with the relative strength of the domestic economy over recent years, according to the Reserve Bank of Australia.

Non-performing asset levels remain higher than a few years ago, though they are low in comparison with those in the major economies, the central bank said. Their largest component – nonperforming business loans – was beginning to show slight signs of improvement towards the end of last year, and the flow of loan loss provisions has already fallen significantly.

RBA said for the largest banks, profitability has now recovered to near pre-crisis levels. Profitability has also picked up for the smaller Australian-owned banks, though the increase has been less pronounced, reflecting their somewhat weaker asset quality.

“The flooding and other recent natural disasters are unlikely to have a major effect on banks’ asset quality. However, they will result in a significant increase in claims on general insurers, which will reduce their profits in the current financial year.”

The reserve Bank also adds Australian banks have maintained ready access to wholesale funding markets in the past six months, but they have also had less need to raise wholesale funds over this period as growth in deposits continues to outpace growth in credit.

This shift towards deposit funding has enabled banks to further reduce their reliance on short-term wholesale debt. As a result, their liquidity positions have improved further. Banks’ capital positions have also been substantially bolstered in recent years.