External financial threats

The central bank noted that threats to global financial stability continue to mount, identifying several international vulnerabilities that represent the most prominent threats to the nation's financial system.

• •A shift in sentiment towards the artificial intelligence investment boom could trigger disorderly asset price corrections.
• •This cycle relies on rapid earnings expectations and a debt-financing structure that is becoming more opaque and circular.
• •High valuations in global corporate debt and share markets mean they are vulnerable to sudden corrections.
• •Ongoing wars in the Middle East and Ukraine, alongside intensifying strategic competition among major powers, amplify global financial risks.
• •There is a rising risk of cyber-attacks potentially facilitated by artificial intelligence, as well as the threat of a global bond market sell-off.

Domestic housing stability

Fewer than one percent of borrowers are in negative equity, meaning they owe more than their homes are worth. Severe financial stress and mortgage arrears remain low, supported by the strong labour market and mortgagors' savings and equity buffers.

Even a 20 percent property price crash would only push about five percent of mortgages into negative equity. The bank clarified that negative equity is insufficient to trigger default if borrowers remain able to service their loans. While buyers using the five percent home guarantee scheme face higher negative equity risks, the share of these borrowers falling behind on their payments remained contained.

These external factors are the most prominent threats to financial stability in Australia.

The central bank concluded that these international elements represent the most significant dangers to the domestic financial system.