Kiwibank beats out Australian-owned rivals, with net earnings up 272 per cent to $79 million.
Profits in the finance sector rocketed up last year despite New Zealand's sluggish economic growth with the banks making close to $3.7 billion.
KPMG's Financial Institutions Performance Survey shows banks' profits grew 13.6 per cent in the year to September 30 while finance company profits were up 14.4 per cent to $234.6 million and profits at non-bank savings' institutions were also up 165 per cent to $30.34 million.
Homegrown Kiwibank beat out its Australian-owned rivals to claim the top spot as the best performing bank with its net profit up 272 per cent to $79 million. Net profits at nearest rival Westpac New Zealand were up 41.57 per cent to $613 million followed by growth of more than 20 per cent by ASB, ANZ and TSB Bank.
Six out of 11 New Zealand incorporated banks had profit increases while seven out of 10 New Zealand branch banks had boosted profits.
But some also saw their profits shrink with BNZ's down 13.56 per cent, Rabobank New Zealand down 25.3 per cent and HSBC down nearly 30 per cent to $39 million.
John Kensington, head of financial services at KPMG said New Zealand's banks were in good shape in contrast to the huge taxpayer bailouts of banks in the US and Europe.
"New Zealand never rose to the dizzying heights of those economies before the global financial crisis. Our banks did not become entangled in the complicated financial instruments that caused havoc in Europe and the US and as a result their credit ratings are among the highest in the world. So, borrowing rates for New Zealand businesses and consumers are at 20-year lows."
The report states that profit increases had been driven by improved net interest margins and reductions in impaired asset expenses.
"We are seeing growth in lending assets of 3.2 per cent with renewed emphasis from banks on key sectors including residential [particularly Auckland], business lending and an emerging re-emphasis on agricultural lending."
Deposits increased 9.8 per cent during the year and asset quality had continued to improve, the report notes.
And forecasts, provided by Massey University as part of the report, show bank profits will continue to rise.
Professor Christoph Schumacher said before-tax profitability would probably drop slightly in the first quarter of this year before rising to $5.59 billion by the end of 2014 up from $4.98 billion as of the third quarter of 2012.
"Total industry lending is expected to continue its slow rise over the next two years, while the overall credit loss and net interest margin ... are both showing a decline to a moderate extent. Based on these findings we predict profitability to slightly decrease till the first quarter of the current year, however profitability to recover from the second quarter onwards."
Kensington said while banks were often criticised for making too much money profitability was a sign of health.
"The banks' profitability allows them to offer New Zealand businesses the loans they need to build and expand."By Tamsyn Parker Email Tamsyn