New Zealand's banks made a combined profit of $3.3 billion last year, the highest seen in recent times.
KPMG's Financial Institutions Performance Survey shows 2011 was a year of strong profits for the banking sector, despite the slow pace of the Christchurch rebuild and people continuing to focus on repaying debt.
The survey analyses the performance of New Zealand's registered banks and shows that combined profits increased by more than $500 million compared with the previous year.
And profits are expected to rise again this year although banks continue to face an environment of low lending levels, high regulation costs and brittle confidence.
KPMG partner John Kensington told Checkpoint the shift from fixed interest loans to floating loans, which are less costly to banks, will help boost profits again this year.
"If they convert the last of the fixed loans to floating, they have some growth in their loan books and [if] they manage their businesses carefully, carefully controlling costs, particularly impaired loans, then I think we will see an an increase. But it will be a more modest increase I would predict."
KPMG says the strong performance is a sign the country has emerged from the worst of the global financial crisis, but it warns business confidence is still soft and a deterioration can not be ruled out in the future.
Mr Kensington says the focus on debt repayment by householders and business could continue into 2013 and beyond, affecting banks' profits.
He says New Zealanders who have money available are not yet ready to start spending and those who don't are reluctant to borrow.
The report adds that the slow pace of the Christchurch rebuild and the shortage of housing have led to lower levels of new mortgage lending.
But when the rebuild starts it is likely to be one of the main factors driving increased spending and borrowing over the next 10 to 15 years.
Union calls for investment in community
Bank workers union First Union is calling on the banks to return some of the profits to the community.
Spokesman Andrew Casidy says the banks have obligations to both the economy and the community that go beyond other businesses.
He says they should provide good wage increases for their staff and a rise in jobs in the sector.
Mr Casidy says banks are also in a position to maintain or lower interest rates and bank charges, which would benefit those struggling because of the sluggish economy.