ASB's mortgage book shrank $518m from June

Notably, its mortgage book shrank by $518 million between June 30 and Dec 31 last year.

Chief executive Vittoria Shortt blamed the fall in profitability on the weak New Zealand economy.

“Bank profitability is inextricably linked to the NZ economy and the environment in which we are operating and the interest rate cycle has been a big influencing factor on the results we've posted,” Shortt said in a statement.

“The past five years have seen the official cash rate fall to a record low, followed by the steepest increase in the history of the OCR [official cash rate]. This increase has had an impact on bank funding costs, including higher offshore funding costs.”