Australia and New Zealand Banking Group, the country's fourth-largest bank, recorded a 5.7 percent rise in first-quarter earnings, boosted by a recovery in its markets business and a fall in bad debt charges.
Australia's top four banks racked up record profits last fiscal year and are off to a strong start so far this year, but have highlighted the challenges from surging funding costs and demand for home loans at a more than three-decade low.
Earlier this week, ANZ announced it would slash 1,000 jobs from its Australian operations this year, cutting costs to protect record earnings as loan growth slows.
ANZ also hiked its variable mortgage rates a week ago, becoming the first of Australia's 'Big Four' banks — including National Australia Bank, Commonwealth Bank and Westpac — to set rates independently of the central bank.
"There is no question that adapting to this environment creates real challenges. Our recent decisions on interest rates for customers in Australia and on how many people we employ at ANZ reflects a need to transform our business in new and often painful ways," Mike Smith, ANZ Chief Executive Officer said in a statement.
Underlying profit rose to A$1.48 billion ($1.59 billion), compared with A$1.4 billion a year ago, and in line with the average A$1.47 billion forecast of analysts.
ANZ's global markets income rose 63 percent to over A$400 million ($429 million), driven by strong foreign exchange sales and bad debt charges fell to A$239 million, down 19 percent from a year ago.
ANZ said its group margins fell 3 basis points from the previous half, citing higher funding costs and deposit costs.
ANZ said the its wholesale funding program for 2012 was in line with 2011, at close to A$20 billion, and has raised about A$9 billion year to date.
The lender reported Tier One capital ratio, a measure of the bank's ability to absorb losses, of 11.0 percent.
ANZ's results mirror the solid performance of its rivals despite their laments on the challenging market conditions faced.
CBA reported a record A$3.58 billion half-year profit, while NAB and Westpac posted first-quarter earnings of A$1.4 billion and A$1.5 billion, respectively.
ANZ shares have risen 3.3 percent so far this year, outpacing the Australian financial index, which has risen 1.3 percent over the same period.