New Zealand's banks have shrugged off global market turmoil and the depressed dairy sector to make a net profit of $1.2 billion in the first three months of this year.
KPMG's Financial Institutions Performance Survey shows the banks' collective earnings were up 8 per cent on the previous quarter, with ANZ's profit up $69 million to $416m, and BNZ's increasing $67m to $259m for the three months ending March 31.
Net profits for Westpac, ASB/CBA and Kiwibank were down on the previous quarter but were still near record levels.
Total bank profits hit a quarterly record high in the three months to September last year when they reached $1.27b.
Non-interest income - income that comes from fees and charges applied by the banks, as well as gains from financial instruments - was the biggest driver behind the profit growth, according to the report.
Non-interest income was up $196.19m across the banks, reversing most of the previous quarter's fall in non-interest income of $249.36m.
Lending by the banks continued to grow increasing by $6.63b over the quarter. Of the big banks BNZ's loan book grew the fastest followed by Westpac.
BNZ attributed its strong growth to increasing its home-loan book by re-entering the broker market and expanding its mobile mortgage manager workforce.
Mortgage lending across the banks reached a new high of $227.7b - up 3.91 per cent over the three months.
But at the same time operating costs and past due assets as a percentage of total loans went up.
Operating costs increased $40.29m across the banks to reach $1.24b mainly driven by more investment in providing digital services.
KPMG found overall past due assets relative to gross loans had increased 8 basis points to 0.18 per cent.
Among the major banks BNZ had the highest percentage of past due assets relative to the size of its loan book at 0.29 per cent compared to the next highest of ANZ at 0.19 per cent. John Kensington, KPMG's head of financial services, said that while the banking sector was well-positioned it was taking precautionary steps against future risks.
"The banks are ensuring that the earnings they have are sustainable, and are starting to take steps to help mitigate and reduce their exposure to volatility in the global and local financial markets," Kensington said.
All four of the major banks had voluntarily stopped real estate lending to foreigners and non-residents where a loan is supported by foreign income, he said.
Last week the big four also moved to tighten lending after the Reserve Bank signalled new restrictions due to come into force on September 1.