While its deposits were up 3 per cent to $56.8b compared to the same prior period, they were down 1 per cent compared to the six months to September 2016.
Westpac New Zealand chief executive David McLean said the bank was maintaining its focus on quality lending and targeted growth in a challenging environment with increased pressure on deposit and wholesale funding margins.
"We saw growth in targeted market sectors, including Auckland and millennials, and it is good to see a continuing recovery for many of our dairy farming customers, which is reflected in our significantly improved impairment position."
The banks impairments more than halved falling $45m to $36m.
But McLean said strong lending competition and increased funding costs had reduced its margin.
Westpac's net interest margin fell 22 basis points to 1.96 per cent while its operating expenses rose to $468m.
McLean said bank was in its second year of a three year programme to transform its customer service and continues to introduce customer-focused solutions.
"In the past six months we've improved our self-serve offerings.
"ATMs now offer both coin selection and note denomination options and since launch last September, 84,000 customers have downloaded our cash management app CashNav, enhancing their cash management options and spending visibility."
"In addition to increasing 24/7 digital offerings, we're investing in high growth areas, such as refurbishing our branch in Whanganui last year and opening a branch at Auckland Airport in April."
The bank also saw strong growth in its KiwiSaver business with funds increasing by 20 per cent in the last year and the average balance increasing from $5,800 in December 2012 to $11,400 in December 2016.
