Bank profits may be levelling out as a weaker economy and high interest rates slow consumer spending and borrowing, with banks substantially increasing their provisions for bad debts.
Collective profits for the sector rose 0.3 percent to a record $7.21 billion in 2023, with strong increases in net-interest income and margins, but also a rise in operating expenses.
John Kensington, head of banking at advisory firm KPMG, said banks had a good year, but the sector's growth may have plateaued.
"Most of the banks that have done well in this survey have done a lot better in the first half of the year than they have in the second half, and subsequent to the survey being completed some of the results have not been so strong."
He said the resilience of households and their ability to keep paying key expenses such as mortgages was a factor, but the level of arrears was now starting to rise and that was yet to show through in the bank results.
"It's all finely balanced. I think the level of strain and stress has got to the point where it can't go on for a lot longer, it might manage another six to nine months, but after that I think we'll see more defaults."
The figures
Bank lending rose 3.06 percent on the preceding year, and net interest margins - an indicator of bank profitability - rose 24 basis points to 2.34 percent.
Net interest income - the difference between what banks paid for their funds and what they charged borrowers - surged nearly 17 percent, or $2.2b, to $15.3b, but was partly offset by a 33 percent fall in non interest income, such as investments and financial market operations, and a near $500m increase in provisions for bad and doubtful debts to $640m.
In a separate commentary, Massey University professor of innovation and economics Christoph Schumacher forecast lending to grow on the back of the surge in migration, margins to fall because of increased costs and interest rates, and profits to rise.
"The outlook for the banking industry is more optimistic as banks will benefit from the record number of people settling down in New Zealand."
But Kensington said as financial pressures remained on households and businesses, banks would be expected to step up and exercise their social licence to support customers in difficulty.