"This turnaround has been driven by the household sector, combined with the banks' readiness to take action before customer lending arrears balloon," PwC financial services partner Sam Shuttleworth said.
The modest decrease in pre-tax profits was driven by a 1 per cent increase in net interest income and the 27 per cent fall in bad debt expenses, offset by a 7 per cent reduction in other operating income and a 3 per cent increase in operating expenses.
After tax, the banks' combined profits increased moderately, from $1.68 billion for the second half of their 2011 financial years, to $1.77 billion in the latest six-month period.
Shuttleworth said the banks had effectively maintained their levels of profitability and had adapted to post-global-financial-crisis conditions.
Looking ahead, Shuttleworth said the signs were mixed for the major banks, given the global uncertainty that remained in various regions around the world.
However, he said the major New Zealand banks had demonstrated over the past four years their ability to cope with the hand they had been dealt, he said.
A better-than-expected 1.1 per cent increase in gross domestic product for the first quarter of 2012, coupled with the woes of Europe and the challenges of the Chinese and Australian economies, meant business confidence would continue to bounce around, he said.
Shuttleworth said New Zealanders were depositing more cash into their savings accounts, which was outstripping the growth in lending.
"This gives the banks an increased ability to self-fund and helps reduce the impact of any future shocks to wholesale funding markets as a result of global events," he said.
While the banks' net interest income was "somewhat stagnant", the average net interest margin reported by the New Zealand major banks continued to improve over the period.
"This is good news for customers, as we can expect the banks to continue competing aggressively on mortgage interest rates as they seek to retain or even gain market share," Shuttleworth said.
For the first time since 2009, the New Zealand major banks' corporate lending portfolios have grown by more than $1 billion to $104.3 billion, he said.
Bank report
* $2.44 billion combined pre-tax profit in the first six months of 2012 financial year for New Zealand's five big banks.
* $1.77 billion profit after tax, up from $1.68 billion for the second half of the 2011 financial year.
* $102 million drop in bad debt expenses to $277 million, compared to second half of the 2011 financial year.
