Profits at the five biggest banks in New Zealand swelled by a quarter in the second half of 2011, returning earnings to pre-global financial crisis levels.
PWC's latest Banking Perspectives report shows profits at ANZ, ASB, BNZ, Kiwibank and Westpac collectively rose 25% to $2.8 billion.
PWC analyst Sam Shuttleworth says the growth is driven by better interest margins as wholesale funding costs have fallen and customers switch from fixed to floating rates.
He says there's been a big shift in the use of floating mortgages and approximately 58% of residential mortgages are now floating, compared to 14% in 2007.
Mr Shuttleworth says interest rates are still comparatively low compared to what people had to pay three, four, five or even 20 years ago.
He says the eurozone debt crisis could have a major impact on future earnings as funding costs increase, unless banks manage to pass it on to borrowers.
But Mr Shuttleworth says overall, New Zealand's major banks are in a good position to cope if another credit crisis occurs.
He says if the eurozone debt crisis does eventuate the banks feel they are well prepared to meet the issues that may arise, they've got stronger liquidity positions, a stronger capital base and they have been through it once.
Mr Shuttleworth says New Zealand banks are as prepared as they can be.
Meanwhile, bad debts in the second half increased by $24 million, but have fallen by $400 million compared to a year ago.