DAVID MARK: Australia's third-largest bank, ANZ, has posted a record profit of $6.5 billion thanks to an increased share of the bountiful mortgage market.

Today though, the Reserve Bank governor Glenn Stevens issued a warning to all bankers that they should be very careful about their home lending standards given the current low level of rates.

It's a warning that ANZ's boss Mike Smith says he's heeding.

Business reporter Michael Janda has more.

MICHAEL JANDA: ANZ's chief executive Mike Smith was all smiles as he announced the bank's latest full-year result.

MIKE SMITH: Today we announced a strong full year result, with cash profit of $6.5 billion, which was up 11 per cent.

MICHAEL JANDA: Mr Smith said most of ANZ's businesses were growing, but a 16 per cent rise in branch home loan sales was a centrepiece of its rising profit.

ANZ's boss says the bank is capturing an increasing share of a growing mortgage market.

MIKE SMITH: I think with this sort of interest rate environment, you have to expect that the demand for housing credit will increase.

MICHAEL JANDA: That's also something the Reserve Bank expects.

Its governor, Glenn Stevens, told an investment conference in Sydney that he isn't yet concerned by the 8 per cent rise in that city's home prices so far this year, or other strong gains in Melbourne and Perth.

GLENN STEVENS: My own view, at least so far, has been that some rise in housing prices is part of the normal cyclical dynamic.

MICHAEL JANDA: But RBC Capital Markets' head of economic strategy, Su-Lin Ong, says Mr Stevens did express more concern than he has in the past about a significant jump in loans to property investors, especially in Sydney.

SU-LIN ONG: He indicated that investor interest in housing had been extremely strong, that they were watching credit growth closely, and there was a bit of a warning as well.

GLENN STEVENS: Lenders and borrowers alike would be well-advised to take due care. It's very important that strong lending standards remain in place, and that decisions, either to lend or to invest, be based on sensible assumptions about future returns.

MICHAEL JANDA: In a briefing to the media on ANZ's results, Mike Smith indicated that the bank had heard the RBA governor's message loud and clear and had tightened its home lending criteria.

MIKE SMITH: To ensure that borrowers have the ability to service loan obligations even if interest rates were to increase by, say, 2.5 per cent. Generally, that stress test has been to a tolerance of 1.5 per cent, and I just think it makes sense to increase it a little bit.

MICHAEL JANDA: Su-Lin Ong says the Reserve Bank's concern about home prices is affecting its interest rate decisions.

SU-LIN ONG: The hurdle to cut further is fairly high. A lot of stars have to line up, we think, for them to ease again.

Now one of the factors working against that are the developments in housing, particularly on the house price front.

MICHAEL JANDA: Mike Smith went even further, saying the Reserve Bank might be looking seriously at raising rates to keep a lid on home prices if it wasn't for the strong Australian dollar.

MIKE SMITH: They will be reluctant to raise rates right now because the effect of raising rates would be to strengthen the Aussie dollar, which would do a fair amount of harm to the economy.

MICHAEL JANDA: Glenn Stevens again lamented the high level of the Australian dollar in his speech, saying the current exchange rate isn't supported by Australia's economic fundamentals. But he also noted that some relief might be at hand next year if the US Federal Reserve starts cutting back on its money printing program, which is holding down the greenback's value.

GLENN STEVENS: For some countries, including Australia, the beginning of a return to something resembling more normal conditions in at least one major advanced country would lessen some of the difficulties that we face in our own policy choices.

MICHAEL JANDA: Speaking straight after Glenn Stevens, Citi's vice-chairman of corporate banking, Peter Orszag, who has worked in senior economic roles for the Clinton and Obama administrations, says that tapering should start happening early next year.

PETER ORSZAG: I think the central expectation at this point is that tapering does not begin until the spring of 2014, that it is largely completed by the fall of 2014, and that rate increases do not begin until 2015.

MICHAEL JANDA: But until Fed actions start to lift the greenback and lower the Aussie dollar, Su-Lin Ong expects the Reserve to wait and watch.

SU-LIN ONG: We've got a lot of push and pull factors here for the RBA. Generally when that happens the RBA tends to sit on its hands for a bit and that's what we think it's doing.

MICHAEL JANDA: But an increasing number of economists now think the Reserve's next interest rate move will be up.

DAVID MARK: Business reporter Michael Janda.