The financial tide looks to be turning for the banking sector on the back of a strong housing market and rebound from Covid-19.
The latest survey of the sector by advisory firm KPMG shows bank profits for the first three months of the year rose 35 percent on the previous quarter to $1.36 billion, with expenses down 6 percent, and impairment expenses down $315m.
KPMG head of banking John Kensington likened the recovery as the end of the beginning of the impact of Covid-19 on the broader economy and the banks in particular.
He said the worst fears on the pandemic, which had prompted the banks to set aside large amounts for potential failed loans, had not eventuated.
"Much of the improvement stems from lower impairment charges - or, in some cases, reversals - in the quarter, reflecting how the current credit quality of lenders' books is significantly better than where they were predicted to be."
He said a strong housing market and the demand for mortgage finance, which grew 10 percent in the quarter, had also been positive.
Bank margins were still being pressured by low interest rates but they had stayed steady or had improved slightly, and Kensington said it was more than likely that bank finances would continue to feel the negative impacts of the pandemic.
"I don't think it's the end just yet, because there are problems with supply chains, problems with importing and exporting products are going to leave some parts of the economy struggling a bit, and it will take some time before we see how the vaccine works."
Kensington said experience after previous economic and financial crises such as the 1987 sharemarket crash, the SARS epidemic and the Global Financial Crisis, showed that New Zealand often felt the hardest impact a year or two after the event.
However, he thought with the immediate effects having waned, the Reserve Bank would resume its moves towards beefing up bank capital levels and other regulatory plans which had been put on hold last year.