ANZ Bank says there are signs bad debts are not getting any worse, which signals the prospect of a improvement in its performance over the next couple of years.
Under its latest General Disclosure Statement, the Australian-owned bank - which is the largest in New Zealand - made an underlying profit of $202 million in the last three months of the year, a decrease of 19% on the same period a year ago.
Lending fell slightly to $97 billion, as corporates raised money from other sources, while the amount it set aside for bad debt jumped 59% to $151 million.
However, ANZ says the trend for bad debt improved from the September quarter, falling by over half, as households appeared to get a handle on their mortgage and credit card debt.
Chief executive Jenny Fagg says there is evidence the economy is stabilising.
For example, she says the housing market has been surprisingingly resilient and unemployment is not as high as expected.