Profits for the country's biggest banks fell slightly in the second quarter of the year as lending picked up pace and consumers shifted their deposits into property investment.
The quarterly bank and financial sector review by accounting firm KPMG showed profit for the nine biggest banks fell slightly to $1.18 billion in the three months to June from $1.19 billion in the previous quarter.
John Kensington, KPMG's head of financial services, said the fall in profits was due to a fall in interest-related income and other investments, and a rise in bad and doubtful debts.
Net interest income rose $70.3 million, but non-interest income fell by $81.7 million and bad debts were up $31.4 million.
The rise in lending was at a five-year high of 2.22 percent or $8.1 billion for the quarter, but funding only rose by 2.08 percent or $7.4 billion.
Mr Kensington said local depositors were shifting their money out of banks because of low interest rates and looking for better returns from property, and that was pressuring banks to change their sources of funds.
"When there's a substantial change with less and less local deposits being made it just puts a bit of stress and strain on where the banks can source their deposits from."
However, he said he did not expect the tighter bank lending rules imposed by the Reserve Bank, which increase the amount property investors and home buyers need for deposits, to make much difference to banks' lending.