The 2013 year showed a much stronger level of profitability and balance sheet improvement in the Australia and NZ banking sector, according to Tim Roche, senior director for financial institutions  (Australia and New Zealand) at Fitch Ratings.Despite some positive signs, such as improved business confidence seen this year, credit growth remains low historically. Competition remains strong in that area, putting pressure on net interest margins - something that Fitch expects to continue in 2014."We do think the impairment cycle for Australian banks has bottomed and will start to head back upwards to more normal levels," Roche said, speaking at the ratings agency's annual credit insights conference in Sydney yesterday. He added that Fitch's view is that the Australian banks' profit levels are not expected to change, while balance sheets will strengthen.Roche also mentioned that the ratings agency expects to see improvements in a fundamental weakness of Australian banking system -  its funding structure - over the next five years. He also suggested that macro prudential controls, including limits on high LVR lending which have formed part of the Reserve Bank of New Zealand's toolkit, were being considered by the RBA.Fitch expects to see strong upwards movement on the OCR in New Zealand over the coming  year, putting pressure on households and on the bank's balance sheets.