PREVIEW-CBA H2 profit seen flat, eye on provisions

* What: Commonwealth Bank of Australia H2 profit

* When: Wednesday

* Cash profit seen flat, analysts focus on provisions

By Mette Fraende

SYDNEY, Aug 11 (Reuters) - Commonwealth Bank of Australia (CBA.AX), the country's second-largest lender, is expected to report flat cash earnings for its January-June second half as lending growth slows.

The earnings will be closely watched as it is the first of Australia's four big banks to report in a market where global credit problems have started to infect local banks, interest rates have risen and economic growth has begun to slow.

Analysts worry that CBA and its peers might need to step up provisions against bad loans, following warnings from top-ranked National Australia Bank Ltd (NAB.AX) and Australia and New Zealand Banking Group Ltd (ANZ.AX).

"We forecast CBA to deliver below peer average underlying earnings growth in FY09F. Coupled with the fact that it appears relatively under-provisioned ... we believe the asset quality risk for the stock remains quite high," Merrill Lynch analyst, Matthew Davison wrote in an analysis.

A Reuters survey of seven analysts on average forecast CBA to report January-June cash profit of A$2.34 billion ($2.1 billion), in line with A$2.33 billion a year earlier.

Cash earnings represent the core profit earned by banks and strip out unrealised profits or losses from interest and foreign exchange hedges. Cash profit also forms the basis for dividend payments.

Commonwealth's provisions are expected to increase to 14.3 percent of the bank's second-half pre-tax operating result from 10.2 percent in the first half, Daiwa analyst Johan Vanderlugt said in a report.

"This is a far cry from peers like ANZ and NAB ... as such, we are less concerned about material provisioning in the future for CBA than we are about its peers, ANZ and NAB," Vanderlugt said.

Two weeks ago, NAB set aside A$830 million ($735.2 million) against potential losses from its exposure to U.S. mortgages, and ANZ followed suit, warning profits would fall sharply and forecast more than $1 billion in bad debt charges as the global credit crisis dented the country's previously buoyant banks.

Last Friday, Australia's fourth-largest lender, Westpac Banking Corp (WBC.AX), said its stressed loans had increased and it expected higher collective provisions, though it was on track to deliver 6-8 percent earnings growth in 2008.

NAB, ANZ and Westpac report full-year earnings in late-October.

CBA shares have dropped 28 percent from a life high last November, outperforming a 36 percent drop in the local financials sector sub-index .AXFJ. (Editing by Ian Geoghegan)