New Zealand's regional banks, which make up about 15 per cent of a market dominated by the subsidiaries of the four large Australian banks, may struggle to increase revenue in the coming year amid competition from their bigger rivals, Fitch Ratings says in a review of the country's regional financial institutions.The nation's regional lenders, including Kiwibank, Southland Building Society, Nelson Building Society, Wairarapa Building Society, TSB Bank, Heartland Bank and The Co-operative Bank, benefit from simple business models that focus on accepting deposits from households and businesses, and lending to fund residential mortgages, business loans and personal loans.They tend to avoid riskier and more complex financial products, Fitch said in its report released yesterday, entitled 'Sticking to the Basics'.Credit risk is mitigated by a generally conservative underwriting approach, despite increasing competition challenging profitability, Fitch said. New Zealand's banking industry is dominated by the local arms of Australian-based lenders. These include ANZ New Zealand, ASB Bank, Bank of New Zealand and Westpac Banking Corporation."Competition in the New Zealand mortgage market continues to challenge the profitability of the regionals. Small relative market shares limit their ability to act as price-setters when competing for price sensitive business," Fitch analysts Andrea Jaehne, John Birch and Tim Roche said in the report. "Competition, especially from the four majors, is likely to put pressure on revenue generation in 2013-2014 for most regional lenders. As a result, Fitch considers cost management and healthy asset quality key to increasing operating profit."The regional banks' smaller scale, limited pricing power, greater risk concentrations and limited access to new capital generally constrain their ability to obtain higher credit ratings, Fitch said.Fitch has assigned a stable outlook to all four regional banks rated in the report, including Kiwibank, as well as to the Southland, Nelson and Wairarapa building societies.reprinted from Business Desk