Wellington, Feb 26 NZPA - ANZ New Zealand, New Zealand's largest bank, is encouraged by a lift in profit in the December 2009 quarter compared with the September quarter, in line with the emerging economic recovery.

The New Zealand branch of the Australia and New Zealand Banking Group Ltd said its underlying profit of $202 million in the December quarter was down 19 percent on the same quarter last year.

"We are encouraged by the lift in profit in the December 2009 quarter compared with the September quarter, in line with signs of recovery in the broader economy following the recession," said ANZ New Zealand chief executive Jenny Fagg.

The bottom line profit in the three months to December 31 of $253m was down 51 percent from last year.

"A key improvement in the December 2009 quarter is the pronounced reduction in provisioning for credit impairment, which has decreased from $351m in the September quarter to $151m," Ms Fagg said.

The $151m figure was a 59 percent increase on the same quarter a year ago.

"There is now evidence that the New Zealand economy has stabilised. As the economic recovery slowly gathers pace, it does offer the prospect of a significant improvement in ANZ's business performance over the next year or two," Ms Fagg said.

A breakdown of the New Zealand earnings showed a 16 percent decline in earnings from the institutional business in the December quarter from a year ago. The institutional business had performed very strongly in the recession.

A breakdown of the New Zealand banking business showed earnings from the retail business were down just 1 percent in the December quarter form the same quarter a year ago, while earnings in the commercial business were down 45 percent.

ANZ New Zealand said it was well-positioned to continue to support personal and business customers.

Reductions in fees across the bank's two brands, ANZ and National Bank of New Zealand, has saved customers $55m on an annual basis.

Lending volumes were subdued. Gross loans and advances decreased to $96.65 billion from $99.12b in December 2008.

The bank lent $2.5b in new home loans during the December 2009 quarter across its two brands.

Funding continued to come at a higher cost.

The bank has previously provided for a tax court case which cost Australian banks hundreds of millions of dollars.