ASB boss Barbara Chapman expects the bank's strong growth to continue into 2014 but said it also faced challenges from higher loan impairments and a margin squeeze on home loans.
The bank yesterday released a record half-year result for the six months to December 31 with its statutory net profits up 14 per cent to $416 million.
Cash profit, which excludes one-off and volatile items, also rose 12 per cent to $393 million compared with the same period the year before.
Chapman said the bank had seen strong momentum across its business with growth in Auckland outpacing market growth and commercial and rural lending also performing strongly for the bank.
"I do think that is going to continue as confidence continues. Businesses in particular are investing more - I don't see that slowing."
Chapman said the growth was happening at a steady, meaningful pace and was not out of control.
Customer advances grew by 7 per cent during the half while deposits were up 10 per cent. Loan impairments also hit a low of just $21 million but Chapman did not expect that to last.
"The fundamental drivers for that have been stable employment and low interest rates. We certainly can see strong employment continuing."
But interest rates are expected to rise.
"We have to expect we are at the bottom of the cycle."
Chapman said she did not expect loan impairments to rise rapidly but predicted they would head up over the next few years.
The bank was already taking a cautious approach to home lending with its economists predicting a rate rise next month.
"When customers are coming in for a floating loan we are building in an escalation in interest rates as part of the criteria so we know they can afford it.
"For people on fixed rates - the market has priced it in anyway."
Chapman said the fundamental driver for loan stress was employment related. Given New Zealand's strong employment growth she did not expect much downside but admitted some borrowers would be affected.
The bank is the first to report a result including the period when the Reserve Bank introduced new speed limits on home lending.
From October 1 banks had to limit lending to those with a deposit of less than 20 per cent to just 10 per cent of new lending.
Chapman said ASB had spent the past few months making sure it had the reporting and measuring of the new loans correct.
"We are now in a position where we are comfortable with a process and have got more scope to lend more. I think we will see a bit more activity."
She said the new rules appeared to have slowed house price escalation but prices were still rising.
But a consequence of the new rules was that competition for lending to those with more than 20 per cent equity had heated up, putting pressure on the bank's margins.
"We are keeping a close eye on margins. There is strong competition in the lending market, particularly in the under 80 per cent area."
Chapman said the bank would remain focused on productivity and keeping a tight lid on costs.
ASB's parent company Commonwealth Bank of Australia also had a record result.
CBA increased its half-yearly profit by 14 per cent to A$4.27 billion, but its chief was cautious about economic prospects.
Ian Narev said there was still volatility in global and domestic markets.
"We have seen, in recent weeks, that there is still volatility in global markets," he said.
"The risks presented by that volatility continue to suppress business confidence."
There was also little evidence that Australia's non-resource sectors, other than housing, were significantly improving.
However, Narev said he remained cautiously optimistic about the economic environment for this year.
- additional reporting AAP