UPDATE 1-Australia's Westpac posts 10 pct rise in H1 cash profit
* Westpac posts 10 percent rise in profit to record $3.62 bln
* Announces A$0.10 per share special dividend
* Australia's "Big Four" on track for record H1 profits (Adds details on earnings, comment)
By Jane Wardell
SYDNEY, May 3 (Reuters) - Westpac Banking Corp, Australia's third-largest lender, posted a forecast-beating half-year profit on Friday, rewarding investors with a special dividend as it grew both its deposits and loan books while curbing costs.
Australia's "Big Four" banks - Westpac, Australia and New Zealand Banking Group Ltd, National Australia Bank Ltd and Commonwealth Bank of Australia - are on track to post combined record cash profits of more than A$13 billion for the first half despite subdued credit growth.
Westpac booked a 10 percent rise in first-half cash profit to a record A$3.53 billion ($3.62 billion) in the six months to March 31 on the back of double digit earnings growth in all its Australian businesses.
The cash result, which excludes one-offs and non-cash accounting items, compared with A$3.195 billion a year ago and beat analysts' average forecast of A$3.4 billion.
"I think the performance was indicative of a pretty modest growth environment but also with disciplined expense management," Chief Financial Officer Phil Coffey told reporters on a conference call.
Net profit was up 11 percent to A$3.3 billion.
Customer deposits increased 12 percent, or A$40 billion, while lending increased 3 percent, primarily due to Australian home loans.
Impairment charges dropped A$170 million, largely due to improved asset quality in the mid-to-large corporate portfolio.
The bank leads its peers with an expense-to-income ratio of 40.6 percent.
"The operating environment continues to be challenging, with subdued lending growth," Chief Executive Gail Kelly said in a statement.
"However, in line with our strategy, we are actively targeting opportunities in higher growth areas where conditions are more favourable such as deposits, wealth, trade finance and natural resources," she added.
Westpac's net interest margin, a measure of profitability, was up 2 basis points to 2.19 percent, while Tier I capital, a measure of a bank's ability to absorb unforeseen losses, was up 100 basis points to 8.7 percent at the end of the half-year.
The bank announced a A$0.10 per share special dividend on top of a rise in the ordinary dividend to A$0.86 from A$0.82 in the prior half-year.
"This really is the icing on the cake, and no doubt will send yield-hunters into a frenzy and likely trigger a rally in the banking space today," IG Markets strategist Stan Shamu said.
The shares of all four of the leading banks have outperformed the market in the past year, but Westpac is a standout even among that elite group.
The stock closed on Thursday at A$31.89, up 43 percent from a year ago.
DIVIDENDS IN FOCUS
Dividend payouts by the Big Four are in focus amid strong investor appetite for what are seen as safe and high-yielding shares.
Westpac was under pressure to please investors after ANZ surprised the market earlier this week with an 11 percent boost to its dividend while reporting a 10 percent rise in first-half cash earnings to A$3.18 billion.
CBA, which reports on a different cycle to its peers, lifted its dividend 20 percent when it posted a record first-half cash profit of A$3.58 billion in February, when it also gave an upbeat outlook for the year.
Analysts expect NAB to also report a solid increase in its cash profit of A$3.1 billion when it releases earnings on May 9.
The board decided on the payout after the bank's capital ratio came in at 8.74 percent in the half-year, above its targeted range of 8 percent to 8.5 percent.
"The board then said we want to be cautious, we want to be careful in what we do, but there's enough capital strength to justify a small capital dividend," Coffey said.
($1 = 0.9758 Australian dollars) (Reporting by Jane Wardell; Editing by Lincoln Feast and Stephen Coates)