ANZ isn't happy about the deposit-rate competition in New Zealand that - on top of a leap in impaired assets - has dragged ANZ's kiwi banking business into a loss in the second half of the year.There are a couple of definitions of ANZ's New Zealand business and using the wider one - which the bank refers to as "New Zealand region" - the loss was NZ$227 million in the second half, to September 2009. ANZ earned a profit of NZ$421 million over the first half of the year.A doubling in the bad debt expense over the second half to NZ$598 million (and a three-fold rise over the full year to NZ$889 million) is the chief drag on profit, though as with ANZ's operations more widely, the latest half may prove to be the worst.The adverse trends in net interest income, which fell six per cent over the second half of the year, may prove tougher to rectify given the scramble for deposits by all banks (and against the ongoing crisis of confidence in the finance company sector).This declining income line was mainly responsible for the drop of 26 basis points in ANZ'S net interest rate margin for the year.ANZ's managing director, Mike Smith, told yesterday's investor briefing that the current trend will see banks pricing themselves out of business."If there is some common sense applied, hopefully we'll see an increase in margin activities, but the deposit rates have just been ridiculous in terms of competitiveness, and I think that's something we just need to watch," he said.Smith also is displeased with the regulatory environment in New Zealand and used the occasion to remind the regulators that "healthy, profitable banks are in New Zealand's national interests", a reference to the much stricter rules on liquidity proposed by the Reserve Bank of New Zealand."We've got a great franchise in New Zealand, but I would observe that banks in New Zealand seem to be doing their very best to price themselves out of business, and the regulatory environment seems increasingly intent on finishing the job, so I do hope that things will improve there," Smith said.Notably, the bank during this period increased its reliance on term deposits with this source of financing rising above the level of senior term debt for the first time since March 2007 at least.While each of the other major banks shares the blame for pricing decisions in the deposit market, ANZ has, unsurprisingly, kept up.Data collated by Interest.co.nz shows that ANZ is currently offering the highest term deposit rates of any bank in the market as of yesterday. The bank's two brands - ANZ and National Bank of New Zealand - were offering the same rates.