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By Angus Whitley and Brett Foley - Tue May 01 23:28:12 GMT 2012

Australia & New Zealand Banking Group Ltd. (ANZ), Australias third-largest bank by market value, said first-half profit rose 10 percent on higher income from its offshore businesses.

Net income in the six months ended March 31 increased to A$2.92 billion ($3.02 billion) from A$2.66 billion a year earlier, the bank said in a statement today. It was expected to report profit of A$2.97 billion, according to the average of seven analysts estimates compiled by Bloomberg. Underlying profit from the Asia Pacific, Europe and America unit rose 21 percent from the previous six months.

Chief Executive Officer Michael Smith is cutting jobs, trimming expenses and turning to Asias faster-growing economies to help offset a struggling domestic housing market and rising funding costs. Australias central bank said yesterday that Europes debt crisis might deliver adverse shocks for some time as it cut benchmark borrowing costs at home by a larger- than-expected margin to spur economic growth.

We are managing in what could be described as a work out phase in the global economy with the situation most acute in Europe, Smith said in todays statement. This will continue to cause volatility in global markets for many years.

ANZ Bank stock has surged 17 percent this year, making it the best performer among a quartet of Australian banks that includes National Australia Bank Ltd. (NAB), Commonwealth Bank of Australia (CBA) and Westpac Banking Corp. (WBC) The benchmark S&P/ASX 200 index has gained 9.2 percent.

Net loans and advances in the Asia-Pacific region, Europe and America surged 32 percent from the same period a year earlier, more than four times the pace of growth in Australia, ANZ Bank said. Deposits at those offshore locations jumped 34 percent, more than double the advance at home.

At the banks institutional division, growth in profit, lending, and deposits also outpaced advances in Australia.

The result showed the value of reducing the banks reliance on Australia, which was a drag on earnings, Smith told reporters today. The profitability of lending in the banks domestic market is declining and theres a persistently lower demand for credit, he said.

The banks group net interest margin, a measure of the profitability of lending, fell 8.9 basis points to 238.3 basis points from 247.2 basis points a year earlier. The Australian business had the lowest margin, according to a presentation filed to the stock exchange.

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ANZ Bank First-Half Profit Rises 10% as Offshore Earnings Surge