Westpac Banking's New Zealand unit had a strong third quarter, outperforming the Australian parent as it grabbed market share and lifted customer lending.

The Australian bank's local unit increased lending by almost 2 per cent in local dollar terms in both business and home loans in the three months ended June 30, outpacing the 1 per cent total lending growth across the group, according to Westpac's quarterly update.

The New Zealand unit, which is the nation's second biggest bank by assets, grew market share and achieved fatter margins, while reducing its impairment charges, Westpac said.
Group cash earnings fell 2 per cent to A$1.55 billion, though operating income rose 1.5 per cent as the bank widened margins across the board.

"The June quarter 2011 saw the operating environment become more subdued with consumers increasingly cautious and larger businesses continuing to deleverage," group chief executive Gail Kelly said in a statement.

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"This was reflected in slowing system credit growth in the quarter, and weaker markets."

In May, Westpac's New Zealand unit said it boosted first-half profit 68 per cent to $210 million on widening interest rate margins as people stayed on floating mortgages for longer.

The shares climbed 3.3 per cent to $26.90 in NZX trading today, and have declined almost 13 per cent this year.