Westpac New Zealand expects Auckland's heated housing market to cool following regulatory changes.
Speaking yesterday after the bank reported a 6 per cent lift in annual cash earnings to a record $916 million, chief executive David McLean said anecdotal indicators, such as auction clearance rates, pointed to a slowdown.
A combination of factors were cooling the market, including Reserve Bank lending restrictions and a new requirement in which foreign investors need to have a New Zealand bank account and IRD number, he said.
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While banks have benefited from the hot housing market, which has helped drive lending growth, McLean said a gradual slowdown - rather than a drastic fall in prices - would be positive.
"I think it is much better to take the heat out of it and minimise that risk," he said.
In August New Zealand's four biggest lenders - Westpac, ANZ, ASB and BNZ - had their stand-alone credit profiles dropped a notch by Standard & Poors because of the risk the ratings agency said they faced from a potential, albeit unlikely, sharp housing market downturn.
Auckland's median house price rose 4.2 per cent last month to $771,000, according to Real Estate Institute figures.
Westpac New Zealand's annual mortgage lending rose 5.8 per cent to $41.9 billion, slightly behind the rest of the market as the bank focused on maintaining margins.
"We would like, over time, to grow at or better than system," McLean said. "But we're not going to go out there and fuel a price war."
Business lending rose 9 per cent, ahead of system growth, to $25.1 billion, driven partly by growth in agricultural lending. Deposits lifted 5 per cent to $51.9 billion, while impairment charges rose to $47 million from a low charge of $26 million in 2014, which was supported by write-backs.
Westpac's record result confirmed a bumper year for the country's big four Australian-owned banks, taking their combined cash profit haul to $4.4 billion.
That's a 4.7 per cent increase on the $4.2 billion they reported last year.
However, their combined cash earnings growth is down from the more than 10 per cent rise the four banks achieved between 2013 and 2014.
McLean said the entire banking sector faced a challenge in driving profit growth, partly because consumer borrowing had "peaked" following a couple of decades of strong expansion.
Westpac's result comes just over a week after the Herald revealed that Westpac had handed 10 months' worth of Dirty Politics author Nicky Hager's banking details to the police without a court order.
Although the bank has since modified its policy, McLean said it still had a "policy of co-operating with the police or other authorities," when it was lawful.
Asked how damaging the Hager incident had been, he said: "There will be people who are upset by it, but I think people ... understand that sometimes things happen."
Westpac Banking Corporation, the New Zealand division's Australian parent, reported a 3 per cent increase in annual cash earnings to A$7.8 billion ($8.2 billion).