The Reserve Bank's Loan to Value Ratio (LVR) restrictions have hurt the earnings growth of SBS Bank, its boss says.
The Southland-based bank lifted its net profit by 9 percent to $15.6 million in the year to March, due to a drop in bad debts.
Total income edged down by 1 percent to $91 million, while expenses jumped 9 percent to $58 million, as it spent more on upgrading its IT systems to allow customers to bank using the internet and mobile devices such as tablets.
SBS chief executive Ross Smith said the Reserve Bank's measures to limit low deposit loans had curbed loan growth, and intensified competition among banks.
"The competition is intense because the supply of loans is limited and certainly since the introduction of the LVRs late last year, it's even been in less demand," he said.
"As a consequence, the banks have been fighting over the lesser amount of available loans on the market and so it's very competitive.
"I think it will be impacting on everyone's earnings in terms of the margin that we're getting out because most banks are now paying a cash incentive for people to move, and that comes at a cost."
The bank knew it had to balance revenue growth with any expenditure growth and was conscious its expenses had increased during the past two or three years at a rate which was in excess of its, Mr Smith said.
He was confident it could balance the two - but said it would not be easy.
"It's extremely competitive out there, so we'll have to be very smart in what we do and we'll have to be very efficient in the way in which we run the operation."
The bank was targetting the Auckland market, which Mr Smith said accounted for half of the total growth in the housing market nationwide. The rest of the country, outside of Christchurch, was flat, he said.
It would be a challenge as the bank did not have branches in the city, so it would use a "virtual" branch and mobile mortgage managers.
"So they will be generating business through the central lending unit and that will be supplemented by broker generated, to a point where we would hope within the next 12 or 18 months we've got sufficient volume up there to warrant the opening of branches."
Mr Smith steps down as chief executive at the end of July after 22 years in charge.