Banking sector profits hit $7.2B as RBNZ considers capital requirement changes
New Zealand’s major banks delivered record profits of $7.2 billion in 2025, sparking renewed debate over capital requirements and market concentration. The Reserve Bank is now reviewing whether stricter capital rules implemented in 2022 need adjustment as banking sector profitability reaches unprecedented levels.
- Combined profits of big four banks reached $7.2 billion in 2025
- ANZ led with $2.3 billion profit, up 12% year-on-year
- RBNZ reviewing capital adequacy framework amid profit surge
- Net interest margins averaged 2.8%, highest since 2019
- Housing lending comprises 60% of total bank credit exposure
The banking sector’s extraordinary profitability has emerged as a contentious issue as household mortgage stress intensifies across the country. ANZ New Zealand posted the largest profit at $2.3 billion, followed by ASB at $1.9 billion, with Westpac and BNZ contributing $1.6 billion and $1.4 billion respectively.
Banking sector performance highlights
“These profit levels raise legitimate questions about market competition and whether our capital framework is appropriately calibrated,” said Reserve Bank Governor Adrian Orr during parliamentary hearings this week. The central bank implemented stricter capital requirements in 2022, forcing banks to hold additional buffer capital of approximately $20 billion.
Net interest margins – the difference between what banks pay for deposits and charge for loans – averaged 2.8% across the sector in 2025, the highest level since 2019. This expansion occurred despite the Official Cash Rate declining from 5.5% to 4.25% during the year, suggesting banks retained a significant portion of rate cuts rather than passing them to borrowers.
Capital rules under scrutiny
The profit windfall has intensified political pressure on the RBNZ to reconsider its capital adequacy settings. According to Reserve Bank analysis, the finding showed New Zealand banks now hold capital ratios well above minimum requirements, averaging 16.2% compared to the 10.5% regulatory floor.
“The capital buffer was designed for crisis resilience, not to subsidise excessive profits during benign economic conditions,” argued Massey University banking expert Professor David Tripe. His analysis suggests banks could safely operate with lower capital ratios while maintaining systemic stability.
However, RBNZ Deputy Governor Christian Hawkesby defended the current framework, noting global banking stress events in 2023 vindicated New Zealand’s conservative approach. “Silicon Valley Bank and Credit Suisse demonstrated how quickly confidence can evaporate,” Hawkesby said. “Our capital requirements ensure New Zealand banks remain unquestionably strong.”
Housing lending continues to dominate bank portfolios, representing 60% of total credit exposure. This concentration has amplified profitability as property values stabilised and mortgage demand recovered following earlier interest rate volatility.
Competition concerns mounting
The Commerce Commission has flagged banking sector concentration as a priority investigation area for 2026. Market share data shows the big four banks control 88% of residential mortgages, with limited challenger bank penetration despite recent market entries.
“Record profits during a cost-of-living crisis highlight the urgent need for structural banking reform,” said Green Party finance spokesperson Chlöe Swarbrick. Opposition MPs have called for a formal market study examining pricing practices and barriers to competition.
Industry representatives maintain profitability reflects operational efficiency rather than market exploitation. “New Zealand banks demonstrate world-leading cost-to-income ratios and credit loss provisioning,” said New Zealand Bankers’ Association chief executive Roger Beaumont.
The RBNZ’s capital framework review, scheduled for completion by September 2026, will examine whether current settings remain appropriate given evolving economic conditions. Governor Orr indicated any changes would prioritise financial stability over short-term profit considerations, though market participants expect some calibration adjustments.
Analysts project banking sector profits could moderate in 2026 as competition intensifies and regulatory scrutiny increases, though underlying fundamentals remain supportive for sustained profitability across major institutions.
