The report highlighted the impact of low interest rates in keeping mortgage payments affordable and consequently improving banks’ credit performances.

A calmer eurozone and stronger investment banking were also important, it said, while the Funding for Lending Scheme had encouraged banks offer lower interest rates.

An introduction to the report said while reputational issues dominated 2012, in a pure financial sense the banking sector had fared relatively well: “All the institutions covered in our report increased their core profits for the year, as well as seeing marked share price gains.

“With banks adopting a more customer-centric focus, balance sheet restructurings well under way and the macroeconomic environment showing signs of recovery, in many ways banks have reached the ‘end of the middle’ with a rosier outlook ahead.”

“There is a big ‘but’ though, in the shape of a tsunami of regulatory changes that are poised to strike.”

KPMG’s calculation of the core profits of HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered rose from £21.7bn in 2011 to £31.5bn in 2012.

However, the banks also faced £7.4bn in costs for meeting PPI claims, with Lloyds alone paying £3.6bn, while other fines totalled £4.7bn.

Of the five banks, only Barclays, HSBC and Standard Chartered made profits before tax on continuing operations.