New Zealand banks managed a combined 0.9 per cent increase in lending in the fourth quarter, a period when operating expenses and impaired asset charge jumped more steeply.
The nine biggest registered banks had $401.65 billion of lending, up from $398.05b three months earlier, according to KPMG's quarterly financial institutions' performance survey (FIPS).
Growth in loans has slowed from a 1.5 per cent rate in the fourth quarter of 2016. Operating expenses rose 4.5 per cent in the latest quarter, reversing almost half of the previous quarter's 8.7 per cent decline.
Profits rose in the final quarter of 2017 by 1.6 per cent to $1.4b but the growth was largely due to an increase in non-interest income, which rose 16 per cent to $882 million while net interest income fell 0.4 percent to $2.4b.
The economy grew 0.6 per cent in the fourth quarter, the same rate as in the third, and slower than economists had expected. Still, the weaker pace was largely due to weather-related farm output being down while service industries recorded growth of about 1.1 per cent.
KPMG cited real estate metrics showing the seasonally adjusted median residential property price rose 7.1 per cent year-on-year in February, while an average two-year mortgage rate is currently around 4.7 per cent, according to interest.co.nz.
The FIPS survey showed the impaired asset expense jumped 70 per cent to about $46m, with seven of the nine banks recording increases. Past due assets fell by 2.1 per cent to $561m.
Gross loans had remained relatively stable and the ratio of impaired asset expense to average gross loans and advances increased by 2 basis points to 0.05 per cent, KPMG said.
"Although all banks increased the value of their gross loan books, the mixed experience with respect to impaired asset expense meant that no clear trend was observable in this ratio across the survey participants," it said in the report.
ANZ Bank remained the biggest by total assets at $157b, ahead of Bank of New Zealand and Commonwealth Bank of Australia on $97b apiece. Of the big four, Westpac Banking Corp recorded the weakest growth in total assets in the quarter with $95.4b, up from about $95b three months earlier.
Profitability showed a similar pattern. ANZ's rose to $520m from $505m, BNZ climbed to $275m from $245m and CBA 's earnings fell to $275m from $292m. Westpac net profit of $268m in the fourth quarter was down from a profit of $282m three months earlier.
Of the smaller banks, Kiwibank total assets were little changed at about $23b while its profit jumped to $28m from $14m.