Banking minnow The Co-operative Bank says a big drop in bad debts helped drive a 24 per cent rise in full-year profit.

The Wellington-based lender, formerly known as PSIS, said net profit in the year to March 31 rose to $7.1 million from $5.7 million a year earlier.

The profit increase was underpinned by a 37 per cent fall in bad debts, the bank said.

Other banks - including major players like ANZ, BNZ and Westpac -- have also reported falling levels of bad debt, which they have attributed to an improving economy.


The Co-operative Bank said 10,000 new customers had joined the bank in the year to March, while deposits grew 7.9 per cent on the previous year to $1.4 billion.

The bank, which shares its profits with clients, said it would pay $1.3 million in rebates to customers compared with $1 million in the previous year.

Chief executive Bruce McLachlan said the Reserve Bank's introduction of high loan-to-value (LVR) restrictions on home loans introduced in the past year had had no impact on the bank's momentum, with lending growth rising by 9.7 per cent.

The LVRs aim to cool a surging property market in many parts of the country, particularly Auckland.

"We have achieved a lot in a short space of time," said McLachlan. "We're still focussed on long-term sustainable growth, with a goal of doubling the size of the business in five years."

He said the bank continued to have capital and liquidity ratios at the "high end" of the industry, which provided "a sound basis for future sustainable growth".