Oct. 29 (Bloomberg) -- Australia & New Zealand Banking Group Ltd., Australia’s second-biggest provider of business loans, said second-half profit rose 13 percent as lending income increased and bad debts slowed.

Net income in the six months ended Sept. 30 climbed to A$1.53 billion ($1.37 billion) from A$1.36 billion in the year-earlier period, the Melbourne-based bank said in a statement. The stock fell after full-year profit missed analysts’ estimates.

ANZ Bank stayed profitable throughout the financial crisis, allowing Chief Executive Officer Michael Smith to make more than $2 billion of takeovers in Asia and at home in the past three months. Smith, who’s bolstered ANZ’s balance sheet with A$4.7 billion of stock sales since May, said in an interview today the bad-debt cycle has “probably stabilized” and he expects corporate lending to rise next year.

“The last three to six months have been positive for economic data, and that’s had a flow-on effect for the banks and their bad-debt profile,” said Michelle Lopez, who helps manage A$1.2 billion at Aberdeen Asset Management Ltd. in Sydney. “ANZ has a good growth option in Asia, providing a kicker that the other Australian banks don’t have.”

ANZ Bank lost 2.1 percent to A$22.85 at the close in Sydney trading, paring this year’s gain to 49 percent. The benchmark S&P/ASX 200 index dropped 2.4 percent. Bank stocks have soared this year as analysts forecast an earnings rebound in the next two years.

Full-year net income fell 11 percent to A$2.94 billion. ANZ Bank was expected to report full-year profit of A$3.13 billion, according to the average of six analysts’ estimates compiled by Bloomberg.

Slowing Charges

The nation’s lenders have weathered the global credit crunch, backed by government guarantees on bond sales, an economy that avoided recession and an unemployment rate that unexpectedly fell in September.

“The final part of this year we certainly saw a slowing in terms of bad debt charges,” Smith told reporters at a briefing. “I’m reluctant to call an end to the cycle, but we’re probably close to the peak. I don’t expect the situation to get any worse but there will be a little bit of a lag effect into the first half of next year. We’re still in a volatile environment.”

Second-half cash earnings, which exclude one-time items, jumped 79 percent to A$2.43 billion. The bank will pay a second half dividend of 56 cents, taking the full-year payout to A$1.02.

National Australia

ANZ Bank’s second-half net interest income, or revenue from borrowers after deducting interest paid to depositors, climbed 23 percent to A$4.99 billion. Provisions for credit impairments in the second half swelled to A$1.63 billion from A$1.27 billion, the bank said.

National Australia Bank Ltd., the country’s biggest lender to businesses, yesterday slumped to a loss of A$75 million in the six months ended Sept. 30, its first in at least nine years, after charges for bad debts climbed. Chief Executive Cameron Clyne said he was “cautious” about the outlook and said banks’ corporate lending may slow further in the current fiscal year.

Smith, who previously led HSBC’s Asian division, is aiming to more than double the proportion of income ANZ Bank derives from Asia to 20 percent. ANZ, Australia’s fourth- biggest bank by assets, said full-year earnings rose 13 percent in Australia, 81 percent in Asia Pacific, Europe and the Americas, and slumped 34 percent in New Zealand.

Acquisition Opportunities

ANZ Bank agreed last month to buy ING Groep NV’s stake in their life insurance and wealth-management venture for A$1.76 billion, the bank’s biggest acquisition since 2003. In August, the company said it would buy Royal Bank of Scotland Group Plc’s units in six Asian countries for $550 million.

Smith said today the global financial crisis may throw out more acquisition opportunities. The bank’s Tier-1 capital ratio, a key measure of financial strength, was 10.6 percent on Sept. 30, up from 7.7 percent a year earlier.

“We do have the capacity to grow organically or indeed through acquisition if the opportunities come along and I suspect there will be opportunities,” Smith said in a Bloomberg Television interview.

“There will be certain banks that have assets in the region that may be considered non-core. We’ve seen the first wave. We will be watching quite carefully,” he told reporters earlier.

To contact the reporters on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

Last Updated: October 29, 2009 02:28 EDT