(Adds background) SYDNEY, Feb 21 (Reuters) - Westpac Banking...

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SYDNEY, Feb 21 (Reuters) - Westpac Banking Corp (WBC) said on Tuesday its level of stressed assets fell slightly in the three months to Dec. 31 after a rise in dairy, oil and metals prices boosted the quality of its portfolio.

Australia's No. 2 bank by market value said stressed exposures as a percentage of total loans fell by 5 basis points to 1.15 percent in the first quarter of its financial year.

Bad debt charges remained steady with the quarter that ended Sept. 30 and were lower than the same time a year ago. Mortgage delinquencies were unchanged overall, although a rise was reported in the mining-focused state of Western Australia.

Westpac did not disclose profit or revenue numbers in its limited first-quarter update or its net interest margin. Westpac's rivals have reported flat or declining net interest margins due to higher funding costs.

Australian bank returns have been under pressure from higher wholesale funding and deposit costs, as well as regulatory changes requiring them to hold more capital against their mortgage books to provide a more level playing field for smaller banks.

Westpac's common equity Tier-1 capital ratio slipped to 9.3 percent at the end of December from 9.5 percent in September due to the timing of its dividend payment to shareholders but remained above its preferred range of 8.75 to 8.25 percent.