BNZ reported on Tuesday its underlying profit rose 9.7% to NZ$669 million in the six months to March 31 after its net interest income grew 3.4% and its other operating income grew 1.2%, but BNZ's net profit fell 3.8% to NZ$400 million after its bad debt charges more than tripled to NZ$99 million and its tax rose slightly.

BNZ CEO Andrew Thorburn said the result was solid in volatile markets and a challenging economy.

BNZ's New Zealand Banking division reported an underlying profit after tax of NZ$228 million for the first half, down NZ$11 million on the previous March result.

Thorburn said increased bank funding costs along with an expected rise in bad and doubtful debt charges were the two key drivers of the lower earnings result.

"In the last six months we have faced unprecedented disruptions in the global credit markets and recession in the domestic economy. Despite these conditions and increased costs we have continued lending and investing in our business and community," said Thorburn.

Non-housing loans rose NZ$4.1 bllion or 16.4% from a year ago.

BNZ Capital, which includes its financial markets and trading operations, almost doubled revenue to NZ$135 million.

"Our experienced BNZ Capital team have produced outstanding results for clients and the bank during a period of extreme turbulence in the financial markets. Strong client relationships have also seen BNZ Capital take a leading role in a number of major transactions over the last six month period," said Thorburn.

BNZ had a strong liquidity position with capital well in excess of the regulatory minimum, and had also worked on diversifying and lengthening BNZ's funding, said Thorburn.