New Zealand's banks came to the end of their golden run in the first quarter with a double-digit percentage drop in net profit, according to KPMG's latest banking survey.
The consultancy's Financial Institutions Performance Survey for the March quarter said an increase in net interest income was offset by a decline in non-interest income, an increase in operating expenses and an increase in impaired asset expenses.
Together, they combined to drive the banks' total net profit down by 11.35 per cent to $1.24 billion over the quarter, down from the December quarter record of $1.401b.
"The negative movement of both profits and impairment will be watched closely in the next quarter, particularly at a time when global markets and geopolitical factors show some signs of volatility and uncertainty," KPMG's head of banking and finance, John Kensington, said in a statement.
"While it might be a pivot point, it's certainly not time to panic as the New Zealand banking sector as a whole still remains strong," he said.
Kensington told the Herald that the banks' performance over the March quarter was solid.
"The December (2017) quarter was a record quarter after all," he said.
KPMG's survey partner, Massey University, had predicted bank profits would level out this year after a strong run.
Kensington said in past quarters, banks had enjoyed the "winds of change" in the form of loan growth, very low margin decreases, and provisioning at very low levels.
"What we are seeing in this quarter is that loan growth has slowed a bit and margins have come back a little, but with increases in operating expenses and impairment," he said.
"Yes, the profits are down a bit, but the banks still had a very good quarter," he said.
In its report, KPMG said banks saw their net interest income increase by $54m, while non-interest income decreased by $144m from the December quarter.
This was paired with a growth in operating expenses of $16m and impaired asset expenses increasing by $122m.
"Many in the industry have been foreshadowing an increase in impairment numbers for some time and so the increased impairment is neither unexpected nor severe," Kensington, said.
Asset quality across the main banks appears to have worsened slightly with provisions and impaired asset expense up for the quarter.
"Though partly driven by the adoption of (accounting standard) NZ IFRS 9, given the increase in individually assessed provisions this could indicate a turning point in the market cycle, or simply a variability in results," he said.
Total loan growth continued at a slow rate with an increase of 1.04 per cent.
The past quarter has also seen the impact of the new Government on the banking and finance industry begin to emerge with Kris Faafoi appointed Minister of Commerce and Consumer Affairs.
The survey covered the big four Australian banks, along with Heartland Bank, Kiwibank, SBS Bank, The Co-operative Bank and TSB Bank.
TSB continued to show the strongest loan growth with an increase of 2.95 per cent in the quarter, seemingly at the expense of net interest margin, which came in at 1.8 per cent, KPMG said.
NZX-listed Heartland Bank topped the net interest margin table with 4.5 per cent.