Bank profits are holding at near record levels in defiance of a slowing economy, rising interest rates and strong inflation.
Collective profits for the sector were $1.73 billion for the three months ended June, fractionally below the previous quarter's record, as lending rose, bad debts remained low and margins increased.
But the industry profit was 19 per cent higher than a year ago and more than double that achieved two years ago as Covid-19 and related restrictions were starting to be felt.
The head of banking at the advisory firm KPMG, John Kensington, said the banks and their profits have escaped the economic headwinds affecting their customers.
"The sector result seems immune from the combined impact of inflation, rising interest rates, supply chain issues, regulatory impacts on lending volumes and a decrease in confidence."
He said banks' net interest income - the difference between borrowing and lending costs - rose nearly 8 percent to $3.22b, the biggest gain in three years, which likely reflected more borrowers rolling off historically low fixed interest rates.
Kensington said as well as increasing their balance sheets, the banks had also lifted their lending margins by as much as 30 basis points.
Another factor working for the banks was the low level of bad and doubtful debts - so far - as households were supported by full employment and rising wages, as well as having been stress tested for their ability to cope with higher interest rates.
'Some hurt' predicted
"It is hard to believe this will continue, given the current economic environment," Kensington said.
"Where it will end is if there are sustained periods of high inflation and interest rates continue to rise and people's loans, which are currently fixed, are repriced ... to higher, newer more current rates that's when you'll start to see some hurt."
Kensington noted three of the major banks, the ANZ, BNZ, and Westpac, had September balance dates and more evidence of the impact of changing conditions.
Overall gross loans and advances increased 1.1 percent on the previous quarter to $499.3b, but a sign of the cooling housing market was the 29 percent drop in new mortgage finance in June on the same month a year ago.
But retail bank loan books were still overwhelmingly slewed to property, which made up 64.6 percent of the sector's lending, a shade lower than the previous quarter, while lending for businesses at 20.1 percent, and agriculture at 11.8 percent continued the softening trend for both classes over the past 18 months.
Kensington said he did not think the changes to the CCCFA would have much impact on the level of lending.
Banks' operational expenses increased more than 10 percent as business started to return to normal, requiring more staff, improved systems, and higher regulatory costs.
The ANZ remained the biggest bank with more than $193b in assets, with BNZ second, followed by ASB and Westpac. The biggest locally owned bank was Kiwibank in fifth spot.