Bank margins squeezed

It says that lending competition puts downward pressure on rates as banks seek to grow market share.

A table in the report shows that Bank of New Zealand, ASB Bank and Westpac have seen their interest rate spreads decrease in the 12-month period to March 31, while ANZ National and increased its spread.

Sacrificing price for lending volume is normal in this sort of market, the Reserve Bank says.

The information provides some indication as to how aggressive price competition has been in the banking sector.

Also the central bank reports on the quality of bank loan books. Overall the level of past due and impaired assets has fallen from their pre-2003 highs. Amongst the banks ASB has the lowest ratio of bad loans, while ANZ National has the highest ratio. BNZ, which had a higher rate has brought that done to be in line with the bankwide average.