“We’ve seen that already slow the rate of new lending down a bit, and it’s possible that… other things that might emerge could cause some further tightening by banks themselves or by the regulators in terms of what they require,” Mr Hartzer said in an interview with Fairfax Media. “If that were to happen then you might see a further slowdown in growth.” Loading Mr Hartzer stressed the bank still predicted growth, as opposed to a contraction, in credit, and the possible slowdown had been factored into its forecasts. The bank's economists are predicting total credit growth to slow from 4.9 per cent to 4.2 per cent this year, and for housing credit growth to slow from 6.3 per cent last year to 4 per cent in 2019, which will be a record low if it occurs. “We’re very conscious that we have to continue to do our job to provide credit to the economy. That means trying to help people who want to buy homes buy homes and support business that want to grow,” he said.

“There’s an ongoing dialogue between us and the official community to make sure that we all understand the impacts of changes that are being made.” The remark came after Westpac notched up a first-half cash profit of $4.25 billion, an increase of 6 per cent, helped by wider profit margins and lower charges for bad debts. But analysts say the banks are clearly approaching a slower period ahead, in part due to the royal commission. Citi analyst Brendan Sproules said Westpac's result was better than expected, as the bank benefited more than rivals from last year's hikes in interest rates, but the true test lay in the outlook. Loading Replay Replay video Play video Play video ''The challenges for [Westpac] are not in this result, in our view, but the changing growth and profitability in retail banking as the implications of the Royal Commission take hold," Mr Sproules said.

Westpac's result showed the strongest revenue growth of a recent round of results from three of the big four, and PwC's banking and capital markets leader Colin Heath said the reports from banks showed the sector faced a "more challenging" outlook. “We’ve heard from each of the banks that there are going to be challenges around credit growth in the short term and we are starting to see credit growth slowing in recent data,” Mr Heath said. Westpac's result showed net interest income rose 8 per cent to $8.3 billion, more than offsetting a decline in fee income, while its operating expenses rose 3 per cent. Westpac chief executive Brian Hartzer Credit:AAP While loan growth is slowing, Westpac's net interest margin - the difference between its funding costs and what it charges for loans - expanded by 7 basis points to 2.17 per cent in the half compared with the September half. This widening was helped by the bank's balance sheet getting the full benefit of last year's increases in home loan interest rates for property investors.

Its charge for impaired loans fell 20 per cent to $393 million compared with last year, a sign that very few customers are defaulting on their loans. The bank held its dividend flat at 94c a share, which will be fully franked and paid on July 4. Westpac shares increased 0.8 per cent, to $29.34. Mr Hartzer said the bank believed the Australian economy would growth near its long-term average pace of about 2.7 per cent for the rest of this year and next. But he said that with household income growth "lacklustre" and very low levels of inflation, the Reserve Bank was likely to leave official interest rates on hold "for some time". Loading Replay Replay video Play video Play video Westpac shares fell sharply late last month after a UBS analyst report questioned the quality of its massive mortgage book, but Mr Hartzer said the bank's loan portfolio was "fundamentally sound," and the UBS report had lacked context.