KPMG's latest report shows non-bank net profit hit $44.34 million in the year to September. The profit growth is double the amount seen in the prior year.
The strong financial performance comes as non-banks capitalise on reduced appetite from the major lenders. A host of issues, such as Responsible Lending, the Royal Commission, and Australian regulatory rules have led banks to become more selective over the past year.
John Kensington, head of banking and finance at KPMG, said the change in behaviour had played into the hands of non-banks: "Banks have been cautious in off-risk mode for a long period of time," he said. "People have found there is another available avenue if the banks say no. As a result the non-banks are looking to grow."
The KPMG report covers non-bank activity in personal lending as well as mortgage borrowing. Non-banks have also provided more personal finance. They lent $5.4 billion last year, up from $4.8 billion the year before.
RBNZ data shows non-banks grew housing lending by 23.4% last year, but still account for less than 1% of mortgage lending. The RBNZ data does not give a complete picture of the market, however.
Kensington expects the ongoing Royal Commission to keep banks in "risk-off mode". He says: "The impact is banks are more careful about who they lend to. They don't want to sell the wrong products to the wrong people, and it has put a bit of a handbrake on the lending market."
As banks continue to turn imperfect customers away, Kensington expects non-banks will continue to mop up business. "I expect two to three years of similar growth".
While the short-to-medium term forecasts look strong, Kensington fired a warning to non-banks, which experienced a sharp downturn during the GFC. "There is a risk they are growing very quickly, hopefully all of the growth will be with good credit quality. The book needs to be able to stand up against rising interest rates."
He added: "Right now, I'm not concerned, but will be increased pressure as banks keep saying no, and riskier stuff will come up."