A haircut for Australian bank profits - but the collapse of bank profitability in New Zealand. That's the take of Andrew Lyons, Ashley Dalziell and Desmond Tsao in a commentary from Goldman Sachs Australia yesterday on the Reserve Bank of NZ's capital proposals.Lyons and co estimated NZ banks' average ROE of 15 per cent in FY18 "would fall by 5 per cent to 9 per cent assuming the needed NZ$19 billion increase in Tier 1 capital was entirely funded by ordinary equity. "As we expect would be the case." To offset this entirely from an ROE perspective, Lyons said, "earnings would need to rise by 55 per cent, which in isolation, could be driven by a 1.5 percentage point increase in the net interest margin in New Zealand.Goldman Sachs guessed the NZ NIM could climb from around 2.2 per cent in FY18 to  around 3.7 per cent.Lyons said: "While this significantly overstates the issue because it ignores the lower cost of equity requirements shareholders would require for banks that would be much better capitalised, it does highlight the near impossible task the NZ subsidiaries of the major banks would face in replenishing ROE in light of a capital increase of this magnitude."Looking at the group impact for the major banks, the NZ$19 billion increase in NZ capital, if it were to result in an equivalent increase in group capital, would reduce FY18 ROEs by c. 1 per cent."