Prudential regulator chief Wayne Byres told the Summit in Sydney he was watching emerging risks, especially in housing markets.

Mr Byres said the Australian Prudential Regulation Authority had cracked down on lending to highly indebted borrowers by tightening some banks’ debt-to-income ratios. The big banks’ share prices fell shortly after the speech.

People’s lives ‘about to be hell’

Deloitte partner and economist Chris Richardson said financial market pricing for a cash rate above 3 per cent in the coming years was effectively investors betting that people’s lives were “about to be hell”

“If that happens, most models would suggest you’d lose 15 per cent to 20 per cent out of housing prices in Australia – there goes $2 trillion,” he said, though such an outcome would be a “mistake” by policymakers.

Mr Byres said the banking industry was “well-placed to weather a more difficult environment, and we do not expect a deterioration in housing loan portfolios to cause system stability issues”.

Furthermore, he said an expected decline in house prices was “on balance, a positive development from a system stability perspective, reducing the need for borrowers to borrow very high multiples of their incomes”.

Other leading bankers were upbeat about Australia’s relative position in the global economy.

“You really wouldn’t switch places economically or socially at the moment,” said Commonwealth Bank chief executive Matt Comyn, who is just back from a trip to the United States, which is experiencing a wage-price spiral.

“The US is a classic overheat,” Mr Comyn said. “Australia is very different.”

He said he struggled to understand why the money market was pricing in the RBA cash rate going north of 3 per cent, similar to the projected US Federal Reserve funds rate.

CBA economists tip a peak RBA cash rate of 1.6 per cent.

NAB’s head of business banking, Andrew Irvine, said business lending would outperform highly leveraged retail banking consumers, who would be more susceptible to interest rate rises and falling house prices.

He said that although the housing construction sector was challenged, agriculture, minerals and energy were strongly positioned to take advantage of high commodity prices exacerbated by the Ukraine-Russia war.

Storm clouds growing over US

“The other area where you’re going to see Australian business do well I think is onshoring of supply chains because it’s so hard to get stuff from anywhere else,” Mr Irvine said.

He agreed that “storm clouds” were growing over the United States, Europe and China, where stresses in global supply chains and inflationary pressures are more pronounced than in Australia.

“We believe Australia, on a relative basis, is going to do very, very well,” he said. “And if you’re going to be investing anywhere in the world, you’re going to be hard-pressed to see an economy do better than Australia.”

Despite the upbeat assessment from business bankers, Council of Small Business Organisations chief executive Alexi Boyd said labour and skills shortages meant some small firms were experiencing a “profitless boom”.

“Economists are saying things are going gangbusters, but small businesses can’t take advantage because they don’t have the workers and issues with supply chain constraining their ability to grow and to innovate,” she said.

“It’s a contraction. That’s a real concern. Worker shortages, worker shortages, worker shortages … we can’t seem to get the government to take action in the short term.

“In a lot of cases, those small businesses are completely overwhelmed and may very well, through sheer exhaustion, walk away from strong, viable businesses because they’re just getting to that tipping point.”

The summit examined opportunities for banks from the valuation pressures on the technology sector, and Mr Comyn suggested that they would seek to form more partnerships as they raced to innovate faster than start-ups could acquire new customers.

The new environment of rising rates was also creating pressures for banks, said Australian Banking Association chief executive Anna Bligh.

“It’s always a clear and present danger for banks that they could end up [in the political crosshairs] because they are so central to people’s lives,” she said.

After falling into a hole after the Hayne banking royal commission, Ms Bligh – a former Queensland premier – said banks had worked hard to climb out and foster a “fragile” positive attitude in the community.

“I think their ability to hang on to that is going to very much depend on how they deal with those individuals, those families and those businesses who will find the next 12 to 18 months very, very stressful,” she said.