Australia's four major banks, which each own an operation in New Zealand, delivered combined earnings of $A13.4 billion ($NZ16.1 billion) for the six months ended March, up 7.3% on the previous corresponding period.
The PwC Major Banks analysis showed tight cost management, a focus on productivity and low bad-debt expenses overcame the Australian economy's weak credit growth to deliver the record result.
PwC Australia banking leader Stuart Scoular said the outlook remained challenging.
The decision by the banks to pass on the Reserve Bank of Australia's full interest rate cut was likely to hurt margins. The RBA recently cut its official cash rate 0.25% to 2.75%.
Competition in certain areas remained intense and overall credit growth remained weak.
''It would be wrong to assume that another round of record profits means the challenges that have confronted Australia's banks in recent years are behind us,'' he said.
Although overall credit growth was weak, credit quality had largely held up. That had triggered further falls in bad-debt expenses, strengthening the sector's bottom line, Mr Scoular said.
In the six months to March, business credit fell 0.7%, equal to about $A5 billion over the period. Business deposits shrank by $2 billion, down 0.4%.
The credit and deposit numbers seemed to indicate Australian businesses were finding it tougher than many had believed, particularly those directly affected by the high Australian dollar, he said.
For the year to March, deposits grew by $A115 billion and lending growth amounted to $A87 billion. That meant all new lending could be funded through deposit growth.
The major banks grew their share of household deposits to 81.2% but lost some share of business deposits to regional rivals.
The banks had a combined interest margin of 2.14% for the half year, a flat result compared with the second half of last year but down 0.6% on the previous corresponding period.
Wholesale funding pressures eased over the period due to improved market conditions, allowing banks to replace wholesale debt at lower rates and with longer maturities.
''It will take time for these developments to have a measurable positive impact on margins and may yet be offset by higher consumer deposit rates.
''Banks are competing aggressively for market share in deposits and this has had a negative impact on margins. This was offset by banks retaining part of the RBA's cuts in the cash rate over the course of 2012,'' Mr Scoular said.
The big question now was how banks could extract more out of less and maintain earnings momentum, he said.
Consistently strong results since the global financial crisis showed how Australian banks had adjusted to low credit growth, an environment unlikely to change in the medium term.
Major investments in operational and IT improvements since the GFC had left Australian banks well positioned compared to banks in other economies.
''Australia's banks are almost unique in maintaining investment in the post-GFC environment,'' Mr Scoular said.
At a glance
• Revenue up, margins flat, costs steady
• Stagnant credit growth
• Bad debts down National Australia Bank owns Bank of New Zealand.
