However, the regulator said that the banking sector remained well-capitalised with 16% of tier one capital - twice that required internationally. Profitability had also held up despite a sluggish lending market because banks had managed to contain costs and most had moved increasingly from traditional lending activity into selling products such as capital-guaranteed funds, unit trusts and insurance on which fees were earned.

Mr Carse said that consumer loan quality had suffered as a result of the rise in personal bankruptcies. "In the third quarter, the rise in bankruptcies began to level off, but it is too soon to say yet whether we are out of the woods," he said.

Bankers must have been listening to their regulator, because early offers of personal tax loans, always a boom sector at this time of year when cash-strapped taxpayers have to cough up to the government, have interest rates only just below those charged last year - although rates have fallen sharply.

Banks have made aggressive noises about competing to the bone for this lucrative business, but the reality seems to be that they are taking no chances, with margins substantially higher than last year's - especially once you read the fine print.

Tax loans represent a major source of business for the banks, with more than US$4bn of income taxes due to be paid over, much of which is financed for shorter or longer periods by the banks.