KPMG's annual analysis of the New Zealand banking sector's performance, which covered 21 financial institutions, has shown net profit after tax decreased by 6.46 per cent in 2016, down from NZ$5.17 billion in 2015 to $4.84 billion.The factors behind this profit decline was rising competition for domestic deposits and volatility in global markets, making funding more difficult and expensive on one side, in combination with rising loan impairments and increased operating expenses. John Kensington, head of banking and finance at KPMG New Zealand, said this margin squeeze means there was little likelihood a lower official cash rate would be passed on to mortgagors. "If the OCR is cut, banks have already indicated they will likely use any cut to buffer margins or to pass on to domestic depositors, as a way to address the mismatch between borrowing and deposits. In other words, don't expect mortgage interest rates to decrease any time soon."Some banks speculate the reduction in domestic deposits may be caused in part by the growing popularity of KiwiSaver and other forms of investment. But irrespective of the cause, the record level of borrowing last year can't continue without deposits to back it up," Kensington said.Margin management aside, NZ banks will have three other areas of focus in 2017: further digitisation of bank services, managing regulatory pressures and the importance of conduct risk."Expect to see more partnerships between banks and existing technology companies in this fintech space, with the most likely area being payments," Kensington said.