Wellington, Oct 29 NZPA - Australia and New Zealand Banking Group's underlying full year profit from the New Zealand region fell 32 percent to $628 million, driven by an almost three-fold rise in credit provisions.

Before provisions, underlying profit for the year to the end of September rose 8 percent to $1.78 billion, ANZ said today.

Jenny Fagg, chief executive of subsidiary ANZ National, said New Zealand's contribution to the group result reflected the economic downturn, which was more protracted and pronounced than in Australia, and also the impact of one-off adjustments.

The economic conditions helped the New Zealand region Institutional business lift revenue 36 percent, compared to 2008, by taking advantage of market volatility in the first half.

But the same conditions had an impact on the financial performance of the retail, wealth and commercial businesses.

Net interest margins in those businesses fell 26 basis points to 2.14 percent over the year, due to intense deposit competition and higher wholesale funding costs.

Other factors were the timing lag in re-pricing fixed rate lending and the increased costs from early repayments of fixed rate mortgages. Revenue in those businesses declined 4 percent, Ms Fagg said.

Net profit after tax for the New Zealand region in the latest year fell 80 percent to $194m.

That result was affected by one-off adjustments of $434m, mainly provisioning on the Conduit tax matter and the offer to ING investors.

"Despite the difficult operating environment, ANZ National continues to be profitable, costs have been well-managed and we have very strong liquidity, funding and capital," Ms Fagg said.

"We hold a dominant market share, leading all the key customer segments."

A focus of the company's growth strategy would be to leverage the existing strengths of its two main brands, ANZ and The National Bank.

The acquisition of ING NZ's funds management and life insurance businesses would enhance the bank's wealth management position in this country.

The ANZ group as a whole reported an 11 percent fall in annual net profit and said the market was close to a peak in the bad debt cycle.

The Australian-based lender with the biggest Asian presence said net profit fell to $A2.943 ($NZ3.66) billion from $A3.319 billion in the previous year.

However, cash earnings, its preferred measure of profitability because it leaves out unrealised gains or losses related to asset values, increased 12 percent to $A3.383 billion, from $A3.029 billion.

Chief executive Mike Smith said while fiscal 2009 had been a difficult year for bad debts for the bank, the rate of growth in gross impaired loans had slowed in the second half.