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A rise in bad debts has seen Westpac New Zealand's half year cash earnings down 3 per cent to $221 million.
The result for the six months to the end of March compared with $227m in the corresponding period a year ago.
Core earnings were up 6 per cent and mortgage volumes up 20 per cent as greater attention to the Auckland market showed strong gains, the bank said.
The fall in cash earnings was due to an increase in impairment losses to $42m, from a historically low level of just $11m in the six months to March 2006.
That increase came as tighter monetary conditions exerted stress on some sectors of the New Zealand economy, Westpac said.
Westpac's share of mortgage registration in the Auckland region grow from 14 per cent to 19 per cent.
Deposit growth was up 11 per cent, and business lending increased by an underlying 15 per cent, maintaining Westpac's market-leading position, the bank said.
Volume growth boosted non-interest income by 4 per cent, from $205m to $214m.
Competition saw a decline in the overall business margin for New Zealand, down to 2.2 per cent for the latest half year, from 2.44 per cent in the corresponding six months a year earlier.
Several factors contributed to the margin reduction, many reflecting the intensely competitive nature of the New Zealand market in housing, credit cards, online savings and other product areas, Westpac said.
The most significant of the factors were the continuing switch to fixed rate mortgages and a further migration to high interest on-line savings accounts.
Expenses were up 4 per cent, reflecting restructuring costs, an increase in advertising costs associated with Westpac's brand re-launch, and higher project amortisation costs.
Westpac New Zealand chief executive Brad Cooper said further effort was needed to improve productivity.
He also said the increase in impairment losses was consistent with the current economic environment, during which some regrading of assets was to be expected, but there were no systemic issues.
Westpac shares were up 30c to $30.80 on the New Zealand sharemarket around 11am today.
Across the Tasman, parent company Westpac Banking Corp reported an 11.7 per cent lift in first half profit and said the outlook for the rest of this year remained positive.
Australia's fourth-largest bank generated a net profit of A$1.641 billion ($1.85b) for the half year ended March 31.
Its cash earnings increased 11 per cent to a record A$1.678 billion, as revenue grew by 7.6 per cent to A$4.91 billion.
- NZPA