ANZ - the country's largest bank - has announced a 13 per cent drop in net profits to $1.54 billion for the year to September 30 .

The bank, which is owned by Australia's ANZ Banking Group, reported a cash profit of $1.53b - down 9 per cent on the back of a range of charges which pulled the result down by $178 million.

Excluding the charges its cash profit fell 2 per cent to $1.66b.

ANZ New Zealand chief executive David Hisco said the bank had had a solid year.

"While our net profit after tax wasn't as strong as the 2015 financial year, the New Zealand business is performing well and reflects the performance of the economy."


Hisco said ANZ had continued to grow deposits and lending and remained the largest mortgage lender across all major cities.

Deposits for the bank were up 8 per cent while lending rose by 5 per cent.

But he said one of the challenges for the New Zealand economy at present was a slower rate of growth in deposits than for lending.

"The banking sector makes up the difference via offshore funding which is relatively more expensive.

"Many New Zealanders see housing, particularly in the current low interest rate environment and in cities like Auckland where there is high demand for accommodation, as the most profitable way to get a return on their money.

"That's why ANZ New Zealand supports the Reserve Bank's tightened restrictions on investor residential lending."

Net interest income increased 5 per cent to $3.029b reflecting continued lending growth while interest margins shrank on the bank of strong competition and as customers switched to fixed rate mortgages.

But its other operating income fell 21 per cent to $795m.


The bank said the fall reflected lower trading income and losses on hedging derivatives.

Expenses for the bank were up 7 per cent to $1.580b due to software changes and restructuring costs.

The bank was also hit by a big increase in provisions for credit impairments, which rose 96 per cent from $76m to $149m.

ANZ said the increased provision reflected the "ongoing normalisation of provision levels in the portfolios, combined with lower levels of write backs and recoveries than have been experienced in previous years".

Hisco said in recent years ANZ has focused on improving the quality of its agri-portfolio rather than outright growth.

As a result, it had performed well during the downturn in global dairy prices as many farming customers adjusted their cost structures to remain profitable at more modest dairy payout ranges.


Longer term, ANZ was also optimistic about the prospects of dairy and believed many of its farming customers were positioning themselves to take advantage of further industry consolidation as well as a back to basic, high performing, low cost production model.