(Adds details, CEO comments)
May 8 (Reuters) - Australia's No. 2 lender, Westpac Banking Corp WBC.AX , said on Monday that first-half cash profit rose 3 percent as credit quality improved in its institutional division, but the bank cautioned it expected slower growth in housing loans as regulators took action to cool the property market.
Cash earnings climbed to A$4.017 billion ($2.98 billion) for the six months ended March 31, compared with A$3.904 billion a year ago. That was in line with a A$4.02 billion estimate of four analysts polled by Thomson Reuters I/B/E/S.
"We remain positive about the Australian housing market, although we expect price growth to moderate through 2017," Westpac Chief Executive Brian Hartzer said. "Housing credit growth is likely to ease a little as demand slows."
The growth outlook for Australian banks, which are highly reliant on mortgage loans, has dimmed after the country's prudential regulator announced on March 31 new limits on some types of lending. like other domestic banks, has raised its mortgage rates in response to regulators' attempts to cool an overheated real estate market. a rise in mortgage rates helps net interest margins for the banks, it could dampen lending growth. Westpac said financial system credit growth was expected to rise by 5.5 percent in 2017.
Westpac's net interest income rose 1 percent to A$7.69 billion as of March 31, while its net interest margin decreased 7 basis points to 2.07 percent from a year ago.
First-half return on equity was 14 percent, down from 14.2 percent a year ago.
Rivals National Australia Bank NAB.AX and Australia and New Zealand Banking Group ANZ.AX both reported rises in half-year cash earnings last week, benefiting from strong credit growth driven by housing loans in Australia's booming east coast property markets. on Monday declared an interim fully franked dividend of A$0.94 per share, unchanged from a year ago. ($1 = 1.3492 Australian dollars)