The latest report on the performance of banks shows the five major banks have posted the biggest growth in their lending books since 2009, up $5.2 billion.
But the PricewaterhouseCoopers report shows their income is down and costs are up.
Partner Sam Shuttleworth says borrowing rates are dropping as homeowners and businesses aggressively renegotiate interest rates.
He says the net interest income remained flat over the last six months purely brought about by the increased competition with banks scrapping for market share.
The banks' combined pre-tax profits in the second six months of 2012 financial years were $2.17 billion, down from $2.44 billion in the first half of the year.