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Overall, the group reported cash earnings of $A3.8 billion ($NZ4.06 billion) in the six months.
Core earnings, or operating profit before income tax and impairment charges, were up 5% to $A5.8 billion in the period.
Westpac New Zealand reported a 17% increase in cash earnings to $432 million.
While loan and deposit growth had increased 6% and 8% respectively, intense competition and a customer preference for fixed-rate mortgages saw margins compress, contributing to 1% growth in revenue on the same period last year, Westpac New Zealand chief executive Peter Clare said.
Expenses were well managed in the period due to the divisions simplification programme.
A further improvement in business and consumer asset quality contributed to much lower impairment charges in New Zealand.
The New Zealand result was driven by a modest increase in revenue, well managed expenses, improving asset quality and a further strengthening of the balance sheet.
''In a highly competitive environment, we have concentrated on meeting customer needs through focused investment and simplifying processes. As the economy gains momentum, we are well positioned to support its future growth,'' he said.
Westpac Group chief executive Gail Kelly said the group result was driven by a strong operating performance from each division, supported by a further improvement in asset quality.
''I am pleased with this result and the momentum we have built ... It is a strong performance and reflects the consistent execution of our strategy, which has customers at its centre.''
The balance sheet was strong and Westpac had sector-leading positions in capital, credit quality and productivity, she said.
In the past six months, Westpac had provided $A41 billion in new lending to Australian retail and business customers.
In her financial highlights, Mrs Kelly pointed to net interest income of $A6.8 million, up 4%, with a 7% rise in average interest-earning assets and a 0.8% fall in margins to 2.11%.
Margins fell a ''more modest'' 0.1% against the previous corresponding period.
''The decline in margins principally reflects more intense competition, in particular in the institutional and New Zealand businesses.''
Westpac's Australian housing loans increased 5% in the period, personal lending rose by 21% and business lending increased by 5%, including the contribution from the Lloyds acquisition.
Group wide, customer deposits increased $A29 billion to $A389 billion, up 8%.
Mrs Kelly said the world economy had improved in recent times with Europe pulling out of recession and the United States slowly moving towards growth.
Partly offsetting that was a deceleration in growth in China, although she expected China's growth rate to settle ''comfortably'' above 7%.
In Australia, while households remained cautious, the pace of spending growth had lifted and confidence had risen, she said.
Housing markets had responded well to low interest rates and housing construction was likely to boost economic activity.
An improving trend in the business sector was starting to emerge.
''Although the slowdown in the mining sector is well under way, business confidence and conditions outside the mining sector appear to have passed the lows in the investment and borrowing cycles.
"On these trends, it is reasonable to expect a sustained, albeit modest, lift in business activity ... this year and next year.''
Mrs Kelly was positive about the second half for the group.
Following the result announcement, Westpac shares rose A4c to $A34.91, ANZ was down A16c at $A34.18, the Commonwealth Bank was A7c higher at $A79.21 and National Australia Bank had gained A10c to $A34.66.