(Adds other performance metrics, background) Aug 24 (Reuters) -...

(Adds other performance metrics, background)

Aug 24 (Reuters) - Australia's Westpac Banking Corp (WBC) , the country's second-biggest lender, on Friday reported lower net interest margins (NIM) for the third quarter amid higher funding costs.

The drop in NIM, the difference between interest paid and earned - a key gauge of profitability for lenders, to 2.06 percent from 2.17 percent in the first half ended March comes at a time of plummeting credit growth in the country.

Growth in Australian home loans for investment hit record lows in June as tighter lending standards and hikes in some mortgage rates exerted further pressure on house prices.

In a bid to attract borrowers, two of Australia's 'Big Four' banks – Commonwealth Bank (CBA) and Australia and New Zealand Banking Corp (ANZ) - have already lowered some of their mortgage rates.

It's been a painful year so far for all Australia's "Big Four" banks, which are among the subjects of a wide-ranging Royal Commission into financial sector misconduct including deception of the regulator and the routine charging of fees for financial advice that was not provided.

Westpac, however, said its stressed assets fell slightly in the third quarter and it also reported lower impairments in its smaller mining and New Zealand dairy portfolios.

Westpac's common equity Tier-1 capital ratio dipped to 10.4 percent at the end of June from 10.5 percent at end-March.

It did not disclose profit or revenue numbers in its disclosures on Friday.

The bank will report full-year results in November.