New Zealand's big four banks collectively made more than $3.5 billion in the last year in another record year for the sector.

Profits grew more than 9 per cent on 2011/2012 - a boost of $303 million across the ANZ, Westpac, ASB and BNZ.

John Kensington, head of financial services at KPMG, said loan growth, lower funding costs and less pressure in competing for deposits had helped boost the bank profits.

At the same time the banks had also managed to keep a tight lid on costs while holding on to their margins.


"Given the size of these businesses it doesn't take much to boost profits when all those planets align."

Kensington said the profit growth showed New Zealand's banking sector was strong.

"It means they will have money to reinvest in communities through wages, employing more people and their work with community projects."

If the banks were not doing well they would be forced into cost cutting mode, he said.

Kensington said it was also positive the banks were not leaning on the Government in any way and their growth could indicate the New Zealand economy was headed in the right direction.

"It might be starting to show what is going to happen in the rest of the economy. We're hearing cautious optimism from the people we talk to."

As part of a report analysing last year's performance of finance sector Massey University predicted bank profits would continue to grow but Kensington said that prediction was made before the Reserve Bank announced the cap on low equity mortgage lending.

Competition for good credit had also increased as banks competed to lend to businesses with the best credit record, he said.

"Those two factors might pair back some of the growth," said Kensington. "But by and large the signs are reasonably good for the banks."

How much money the big four New Zealand banks made in 2012/2013:

ANZ $1.37 billion, up 8 per cent
Westpac $770 million, up 9 per cent
ASB $705 million, up 3 per cent
BNZ $695 million, up 19.5 per cent
Total $3.54 billion