Australia's Westpac's Q1 profit falls just 2 pct

Westpac's cash profit fell just two percent to A$1.2 billion ($766 million) for the three months ended Dec. 31, despite bad-debt charges leaping more than five times to $800 million.

"There are some bad-debt issues that are affecting all the banks but what we are seeing is that revenue margins are improving for the likes of Westpac and CBA (CBA.AX) in particular," said Paul Xiradis, chief executive at fund manager Ausbil Dexia.

First-quarter impairment charges came close to the A$931 million in charges for the whole of last year. The overall dip in cash profit was on a pro-forma basis, taking into account its recent purchase of smaller lender St George Bank.

Westpac described its first-quarter performance as robust.

Earlier this month, top lender National Australia Bank (NAB) (NAB.AX), No. 3 lender Commonwealth Bank of Australia (CBA) and fourth-largest bank Australia and New Zealand Banking Group (ANZ) (ANZ.AX) all flagged rising bad debts as they face a challenging year of slowing credit growth, rising impairments and limited access to wholesale funding.

Westpac's total lending rose 2.4 percent over the fourth quarter, and customer deposits were up 9.6 percent.

"With global economic conditions continuing to be volatile, operating conditions will remain difficult. However, Westpac is well positioned to meet the challenges ahead," Westpac chief executive Gail Kelly said in a statement.

Analysts had expected solid earnings from the bank, which took over St George, the fifth-largest local lender, last year in Australia's largest-ever banking deal.

Australian banks have not been hit as hard by the global credit crunch as U.S. and European peers, but analysts say they cannot escape altogether the effects of a slowing economy and the risk of large companies getting into trouble at home.

In recent months, banks have been on an equity capital-raising spree to strengthen their balance sheets as provisions rise. Analysts expect them to cut dividends this year, a step last taken in the early 1990s.

(Reporting by Mette Fraende, Editing by Mark Bendeich)