Bank profits are yet to show the direct impact from the "dark clouds" threatening the economy with another record quarter for profits.

KPMG's quarterly Financial Institutions Performance Survey shows banks collectively made $1.74 billion over the three months to March 31 - an 8.08 per cent rise on the last quarter of 2021.

But not all banks were in the black. The Co-operative Bank posted a loss, the first one among the major banks to do so since June 2020.

John Kensington, KPMG head of banking, said the profit rise was largely attributable to an increase in net interest income and non interest income alongside tight management of operating expenses.

"This illustrates a continued focus on cost control from banks as they look to position their businesses for the economic headwinds," he said.

Net interest income rose 2.11 per cent from $2.93b in the December quarter to $2.99b in the March quarter driven by an increase in lending while non interest income rose from $738m to $857m.

Gross loans and advances grew by 1.25 per cent to record levels with the net interest margin across the bank widening to around 2.1 per cent.

Kensington said the banks had also slowed the release of loan provisions with an impairment expense being made for the first time since September 2020.

Total loan provisioning rose 1.2 per cent to $2.47b.

Kensington said this was the first increase in the total provisioning level since June 2020 after six consecutive quarters of the sector unwinding the provisions taken at the beginning of the pandemic.

While the sector results made it appear immune to the combined impact of inflation, rising interest rates and supply chain issues Kensington expected to see the impacts of these in the next quarter.

"How deeply the impact is felt is yet to be seen - the sector has been planning for these, and we've only just seen the first signs of an impact in the form of provisioning levels increasing."

He said the New Zealand economy traditionally experienced delayed impacts from a crisis.

"Events like the 1987 share market crash, the Asian crisis and the GFC have taken two or three years for their impact to show up fully in the economy.

"Given it's been little more than two years since Covid-19 first emerged, in the next year or so we would expect to experience the full effect of the pandemic and the resulting inflationary pressures, increased interest rates, supply chain and labour shortage issues."

Kensington expected a weakening in the banking sector results in the second and third quarters.

"Over the remainder of the year, it will be interesting to see how the wider economy fares and whether the impact of rising interest rates and the rising cost of living leads to an increase in arrears."

Combined with a fall in business confidence and the falling housing market Kensington said banks could need to consider higher levels of provisioning again while there might be a reduction in discretionary spending as household budgets come under pressure.

However, he said the one silver lining was that the banking sector was well capitalised, had been conservatively managed and was well placed to deal with the challenges ahead.