Westpac says its cash profit in the June quarter fell 1% to $A1.4 billion, but bad loans were shrinking and lending rates were improving.
The bank did not give any breakdown for how its New Zealand business was performing, saying only that the operating environment remains challenging and its interest margins were squeezed during the quarter.
However, Westpac set aside $A300 million to cover bad or doubtful loans during that time, which is down from $A440 million the previous two quarters.
An average of $A800 million was set aside for each of the quarters in 2009.
Meanwhile, the bank says it lent an additional $A7 billion to households and small businesses during the quarter, while attracting $A4 billion in deposits.
Westpac says wholesale funding costs are rising, but it has secured $A40 billion in wholesale funding, which will meet its funding needs this year.