A banking expert believes business lending will continue to decline over the next year, as interest rates rise and companies continue to seek alternative ways to raise cash.
The latest banking perspectives report from PricewaterhouseCoopers looks at how well the country's five major banks - ANZ, ASB, BNZ, Kiwibank and Westpac - fared in the first six months of the year.
It concludes that while bad debts fell, underlying earnings were flat, as wholesale funding costs continued to rise.
Household lending rose, but business lending fell as companies reduced debt and chose the bond market over bank borrowing to raise cash.
PricewaterhouseCoopers financial services partner Sam Shuttleworth says that trend is likely to continue over the next year.
He says while corporate bad debts more than halved to $315 million in the first half of the year, the bad debts from the household sector reduced by only $7 million, to $453 million, over the same period, as households lag behind the recovery of businesses.
Meanwhile, he says the road ahead looks relatively flat for the major banks, but a few potential challenges could disrupt their recovery, as the northern hemisphere recovery is volatile and banks rely on international markets for wholesale funding.