New Zealand banks' contention that core-funding ratio is affecting their margins appears to run contrary to the trend in net-interest margins this year.Data from the Reserve Bank of New Zealand shows the net interest margins of banks have been on a gradual up-trend since the low hit in October and November last year. Moreover, the data reveals that the gap in the margin of all registered banks, compared with its sub-set of banks that are heavily exposed to the retail sector, is narrowing, and has even turned negative.The RBNZ data shows net interest margins for all registered banks and a sub-set that gives data for retail registered banks. Retail registered banks are defined as the class of banks, including their banking groups, which have a significant proportion of both assets and liabilities with the household sector.In case of retail registered banks, the NIM has been steadily increasing from a low of 185 basis points in October 2009 to 212 bps in August. The NIM for all registered banks rose from a low of 195 bps in November 2009 to 212 bps in February. It fell again, to 207 bps, before rising to 211 bps in August.The gap between the margins for the all banks, versus just retail exposed banks, was around 12 bps in October. It fell to one bps in June and turned negative in August. This indicates that retail exposed banks aren't feeling the pressure from the core-funding ratio that was effective in March.The overall improvement in margins since October last year is a result of a rise in lending rates, while deposit rates have been largely steady. The lending rate for all banks rose to 5.95 per cent in August, from 5.78 per cent in October, while the deposit rate barely moved, to 4.17 per cent from 4.16 per cent.Kiwibank has been among the most vocal of banks blaming the RBNZ's core funding ratio for the drop in its financial performance. The bank's CEO Sam Knowles has said that strong competition in the deposit market not only affected the quantum of deposits, but impacted on the net interest margin.In its survey of banks, KPMG noted that net interest margins for banks had stabilised 3 bps higher, at 210 bps, in 2009. But, since September 2009, interest margins have been under "significant pressure from the increasing cost of retail deposits."