A report has found the country's five major banks' pre-tax profit rose 6 percent to $1.7 billion in the first three months of the year.
PWC said ANZ, ASB, BNZ, Kiwibank and Westpac benefited from a rise in other operating income and lower costs, which offset a fall in net interest margins.
While total loans increased, net interest income - which is the difference between borrowing and lending - fell by $40 million to $5.3 billion, due to intense competition in the home lending market to either keep customers or attract new ones.
Banks' funding costs fell due to significant reductions in wholesale interest rates.
As a result, their net interest margin decreased from 2.31 percent to 2.26 percent.
The percentage of mortgages with a loan to value ratio of more than 80 percent continued to fall, from 15 percent to 14 percent of total home lending.
SBS reports record annual profit
The Southland-based SBS Bank made a record annual profit due to wider margins and expanding its presence in Auckland.
The bank made a net profit of $19.4 million dollars in the year to March, an increase of 24 percent compared with the previous year.
Total income rose by 17 percent to $107 million, due mainly to a rise in net interest income.
SBS chief executive Wayne Evans said the bank had performed well across the board, with its home loan, consumer finance, insurance and wealth management arms all doing well.
"We saw widening margins that have contributed quite significantly to profit growth.
"Then in the back half of the year, as we invested in our network," he said.
Expenses rose 17 percent to $68 million as it spent more on upgrading its IT systems to allow customers to bank using the Internet and mobile devices like tablets.
Loans rose five percent to $2.39 million, while deposits rose 3.4 percent to $2.52 billion.