Westpac's performance was attributable to a significant increase in impaired asset expenses, while net interest income also fell.
KiwiBank had the largest percentage fall in net profit with a 37.14 per cent ($13m) drop.
Meanwhile New Zealand's largest bank, ANZ, stood out with a $63m increase in net profit.
This was driven by an increase in non-interest income with increases in funds management and insurance income.
Broadly across the sector a reduction of net interest income - down 3.01 per cent - was a big driver of the profit decline.
Fundraising costs for the banks actually fell during the quarter, as did interest expenditure.
Funding costs - how much banks are paying to borrow money - fell across the board for all the banks.
ASB, BNZ and ANZ led the pack with funding cost decreases of 15 basis points (bps), 12bps and 9bps respectively. This was due to a combination of an all-time-low official cash rate (OCR) and stabilisation of offshore lending markets.
However this fall in funding costs failed to offset the overall decrease in interest income.
"We've seen the industry continue to focus on quality lending, which has led to a decrease in total provisioning levels. This indicates the banks are generally confident in the quality of their loan books at the moment," says Kensington.
KPMG concludes that the performance of the sector was solid - through a quarter marked by significant regulatory changes and global turmoil.
"Really, it's been a frantic time in the sector this quarter", Kensington said. "And the result showcases the sector's resilience."
Key Points:
- March 2017 quarter saw a decrease in net profit after tax (NPAT) from $1.24b in the December quarter to $1.20b
- Five of nine banks surveyed reported reductions in NPAT for the quarter
- Net interest income reduced by $69.03m - with interest income reducing by $124m, offset by a $55.27m reduction to interest expense
- Impaired asset expense increased by $2.07m to $47.02m.
