The Australian banking system remains in a relatively strong position, the Reserve Bank of Australia (RBA), the country's central bank, said in its quarterly Financial Stability Review.
The review said the improvement in global market sentiment since the middle of 2012 has eased wholesale funding costs for the large Australian banks, with bank bond spreads declining to around their lowest levels since the start of the crisis.
The banks have been continuing to limit their use of wholesale funding in any case, and deposit growth has been outpacing growth in credit.
"Continued strong competition for deposits has seen spreads on retail deposits remain around historically high levels even as spreads on long-term wholesale debt have narrowed significantly over recent months."
The report said Australian big banks have collectively continued to record strong profits in recent periods, helping them to strengthen their capital positions further.
The banking sector's asset performance has also been improving, though at a gradual pace due to the challenging conditions being experienced in some parts of the Australian and UK business sectors.
"With domestic demand for credit likely to remain moderate in coming years, banks are increasingly pursuing other strategies to underpin their profit growth over the medium term, such as efficiency improvements and expansion in the Asian region," the report said.
The RBA said Australia's banks had increased their exposure to Asia from 20 billion Australian dollars (20.8 billion U.S. dollars) a decade ago to well over 112 billion by the end of 2012.
A key motivation for major local banks' expansion into Asia was to facilitate the large and growing trade and investment flows between Australia and the Asia region, the report said.
The RBA report also said that Australian households continue to take advantage of lower interest rates to reduce their high debt. The household savings rate has stabilized at 10 percent, well above its 20-year average, while conservatism extends to limited appetite to take on new debt.
"Household indebtedness and gearing are nonetheless still at historically high levels, hence continuation of the household sector's more prudent approach to borrowing would assist in strengthening the sector's financial resilience," the report said.
The report pointed to some encouraging developments in global financial markets as confidence increased that Europe's leaders could restore stability to the region.
Responding to the RBA report, Greens Deputy Leader and banking spokesperson, Adam Bandt, said the time had come for the Treasurer to make the major banks contribute more to the May Federal budget.
"By slugging consumers with fees and making more from mortgages, Australia's big banks have been raking in world- leading profits over the last few years," said Bandt, "the government gives the big banks effective subsidies worth billions of dollars a year and it's helping them make record profits."