Prime Minister John Key met bank CEOs last Friday and reiterated he expected banks to pass on interest rate cuts to consumers fairly, pointing out the relative lack of falls in credit card rates.

But he steered clear of accusing the banks of profiteering and said they were healthy, well funded and willing to lend, even though demand had been hit hard.

"I'm very confident that our banking system is in a lot better shape than what we're seeing in the United States or Europe," Key told a post-cabinet news conference on Monday when asked about visits to bank CEOs last Friday.

"Firstly, I wanted to do a health check that they were seeing things the same way, and that they were confident and were raising money. Secondly, it was to point out to them it was the government's expectation that the banks would act honorably and pass on to consumers lower interest costs and lower costs overall, where it was fair and reasonable that they should do so," Key said.

Asked about the vexed issue of fixed mortgage rate break fees, he said: "Each of the banks have a different approach to break fees. For some of them there is a profit component for them if they break, and others are losing money."

Key said he was pleased with the state of the banks, pointing out they were well funded, well regulated and had steered clear of the excesses or the toxic debt that was hitting European and US banks.

"They're in pretty good shape. The Australian banks have raised about NZ$45 billion in the December/January period. The New Zealand banks are in good shape, but they have all welcomed the news that Alan Bollard and John Whitehead are doing a road show because there is issues about looking at New Zealand -- S&P have put us on negative outlook," Key said.

Asked if banks were not passing on enough of the rate cuts, he said: "I'm not arguing that they're not (passing on rate cuts). They have passed on 400 of the 475 (for fixed rate mortgages). I think they can do a bit better on the issue of credit cards," Key said.

Asked about the banks' willingness to lend, he said: "That was part of the health check. The demand side has reduced dramatically both on the residential and business side. They have expressed a strong willingness to lend and confidence that they can raise money," he said.

"There's a fair bit of capacity still within the New Zealand banks to tap into resources in Australia if they need to. It's a healthy, positive situation, but it's my responsibility as Prime Minister to spell out my expectations."