Westpac New Zealand chief executive David McLean is hopeful a slowing local property market will consolidate and income levels will rise to make housing more affordable over the long term.
The bank yesterday said lower impairments had helped to boost its cash earnings to $970 million, up 9.5 per cent over the previous year.
Core earnings were flat, falling 0.3 per cent to $1.28 billion, but McLean said it was a "solid result in a competitive environment".
Latest Real Estate Institute of NZ data showed median house prices overall were up 1.2 per cent in the year to September at $525,000. In Auckland, the median house price was up 5.7 per cent over the same 12-month period to $845,000.
McLean said a plateau in house prices would be welcome.
"The ideal outcome would be for house prices to go nowhere for an extended period of time, with no house price inflation, and that over that period rising incomes make housing more affordable," he said.
"There could be a confluence of policy settings that could have that effect."
McLean said several new government policies, from curtailed immigration to the extension of the so called bright line test to five years from two, could further dampen the real estate market.
But those policies could be offset by the stimulative effect of other policies on the economy.
"What we don't want to see is a big negative correction," he said.
McLean said there had been a slowing in conditions in the property market. "How much of a slowing, and how long it's going to last, is going to be the big question."
Margin pressure from increased competition for deposits in the first half levelled out a little in the second, he said.
While funding the bank domestically was competitive, funding in overseas markets was still "readily available", although McLean said he expected conditions to tighten as central banks around the world looked to row back on post-global financial crisis stimulative measures.
On farm debt, farmers were still in the process of repairing their balance sheets after the price slump of 2013/14, and 2014/15, which required Fonterra to offer its farmers assistance with soft loans.
He said the bank's improved impairment position came from "a couple of corporate writebacks from the pre-2010 years".
"We are now seeing nearly all the post-GFC troubled corporate exposures now are cleared up and written back," the Westpac CEO said.
Impairment recoveries at the bank improved from minus $59m to a positive $76m.
Net loans grew 2.91 per cent to $77.3b, with home lending up 4 per cent while business lending grew 0.7 per cent. Deposits were up 1.6 per cent to $58.4b.
McLean said customers were taking advantage of today's low interest rates by making extra mortgage repayments, building savings buffers and entering the property market.
He said the bank had lifted term deposits by 3 per cent year on year and its KiwiSaver scheme was continuing to grow, increasing by 19 per cent to $5.2b over the year, with the average balance up 17 per cent from $11,300 to $13,200.
Parent company Westpac made a net profit of A$7.99b, up 7 per cent, while its cash earnings rose 3 per cent to A$8.06b.