(Adds details, CEO comment)
May 2 (Reuters) - Australia and New Zealand Banking Group ANZ.AX said on Tuesday its first-half cash profit rose 23 percent, helped by the performance of its core lending business as it forecast a "broadly neutral" outlook in the second half.
Cash profit for the country's third-biggest lender rose to A$3.41 billion ($2.57 billion) for the first six months to March 31. However it fell short of analyst expectations for a cash profit of A$3.49 billion, according to four analysts surveyed by Thomson Reuters I/B/E/S.
ANZ's net interest margin fell to 2 percent from 2.06 percent at Sept. 30 due to higher wholesale funding costs and deposit competition.
First-half return on equity, typically lower than peers, rose to 11.8 percent, from 9.7 percent a year earlier.
"The environment for banking remains constrained with intense competition and pressure on margins, subdued lending growth, rapidly changing customer expectations and increasing regulation," ANZ Chief Executive Shayne Elliott said in a statement.
"The provision charge has improved and the outlook for the second half remains broadly neutral."
ANZ was the first of three of Australia's Big Four banks to report results for the half-year ended March 31 over the next week. It was expected to report the highest earnings growth of the group because it is in a major turnaround phase with bad debts falling and assets being sold to boost returns.
ANZ, like other Australian banks, has pushed up mortgage rates, particularly for housing investors, as the country's banking watchdog attempts to cool an overheated housing market in the key markets of Sydney and Melbourne.
The move is likely to improve net interest margins for the banks, but it could dampen lending growth.
On March 31, the Australian Prudential (LON:PRU) Regulation Authority told banks to limit new interest-only lending to 30 percent of total new residential mortgage lending, from a level of about 40 percent previously. gross loans and advances grew nearly 3 percent from first-half 2016, to A$580.4 billion.
Provisions for bad debts fell to A$719 million, from A$904 million a year earlier.
ANZ kept its interim dividend steady at A$0.80 per share. Its Tier 1 capital ratio was at 10.1 percent as of March 31. ($1 = 1.3294 Australian dollars)