The banking sector has returned to a normal level of profitability in New Zealand, due to a drop in the cost of bad loans.
An annual survey of performance by financial institutions by KPMG shows registered banks made a profit of $2.8 billionin 2010, up 89% from an all time low of $299 million the year before.
The cost of bad loans dropped by 42% to $1.3 billion.
KPMG says profitability is back to a more normal level, despite households and businesses concentrating on paying down debt.
Looking ahead, it says lending by banks will continue to be low and margins crimped as banks will look for businesses that can support the cashflow that's required to be repaid under any new loans.