Yesterday consultancy firm KPMG said that if the credit crunch becomes even worse, New Zealand banks could become more conservative, prompting an economic slowdown.
KPMG also stated that New Zealand banks had continued to grow in profitability over the course of 2007, largely due to strong asset growth.
The combined profits of the largest banks rose by 10% in 2007, hitting $3.2bn.
More recently asset growth has declined and lending behaviour has become more cautious as the credit crunch blossomed.
New Zealand banks are dependent on overseas funding for over 30% of their lending, but the current economic climate makes finding funding more difficult and the costs of it more prohibitive.
If the credit crisis continues to worsen, then the banks could be forced to reduce their lending and adopt a more conservative policy, which would make it even more difficult for consumers to borrow.