The Reserve Bank of Australia (RBA) found the Australian financial system to be strong and profitable.

In a statement, the RBA said, “In the period since the previous Financial Stability Review the health of the major international banks has mostly improved, despite a significant amount of uncertainty in financial markets.”

The RBA review pointed at the Big Four profits of $10 billion which is about $1.25 billion higher than 2009's figures. Uncertainty, however, was more on sovereign debt in Europe.

Despite support packages and the stress-testing of Euro area banks, “some country specific concerns within the euro area have recently re-emerged... These events have influenced markets outside Europe and there have been periods of renewed weakness in international funding markets, “ the RBA said.

Moreover, global concerns on uncertainty also loom over the U.S. economy.

In the domestic area, the RBA disclosed that households remain slightly cautious on debt. The Review also shows a slowdown in household borrowings and loan approval levels. Owner occupiers were reported to be holding back because of a decline in availability.

Interest rates are up for discussion in the RBA's board meeting on Tuesday. A 25 basis point rise is expected and this would take the cash rate to 4.5 percent.