News: UPDATE 1-Australia's Westpac H1 cash profit up 3 pct, lags forecast

(Adds CEO comments, more earnings metrics)

Australia's No.3 lender Westpac Banking Corp (WBC) on Monday reported a 3 percent rise in first-half cash profit, lagging forecasts as higher debt impairment charges hurt growth while a significant increase in capital pinched shareholder returns.

Cash earnings for the six months ended March 31 rose to A$3.9 billion ($2.96 billion) compared with A$3.78 billion a year ago and a A$4.07 billion estimate of six analysts polled by Reuters. Earnings were helped by growth in mortgages and corporate loans on the back of record low interest rates.

CEO Brian Hartzer said he expects a "slight moderation" in credit and deposit growth through the year as well as some increase in consumer deliquencies over the second half.

Dark clouds are gathering over Australia's financial sector, which sailed through the global crisis but now faces slowing profit growth, onerous capital rules and rising defaults and questions over corporate responsibility in an election year when bank misconduct is shaping as a hot issue.

"There have been a few pockets of stress, mostly related to lower commodity prices, and an increase in provisions for a small number of larger exposures, which contributed to a rise in impairment charges," Hartzer said, adding overall asset quality was sound.

Stressed exposures rose 4 basis points in the first half compared with the prior half, reflecting a rise in consumer delinquencies, including in regions affected by a mining downturn. Impairment charges increased A$326 million.

The Big Four have together lent about A$66 billion to the resources sector, about 1.8 percent of their combined loan book of A$3.6 trillion.

Net interest income, the difference of interest earned and paid out, rose 10 percent with net interest margins, a key gauge of profitability, rose 9 basis points.

Non-interest income slipped 4 percent, reflecting lower Australian credit card interchange income and weaker institutional fee income.

The nation's oldest bank declared an interim dividend of 94 cents a share, unchanged from the final dividend of 2015.

Weighed by concerns about credit quality and the risk of a dividend cut, analysts have downgraded earnings per share estimates for each of the four major banks by 1-2 percent.

Australian bank shares are among the worst performers on the benchmark index (xjo) so far this year, down anywhere from 5.6 percent to 13 percent. ($1 = 1.3161 Australian dollars)