ANZ made a better-than-expected $3.7 billion half year profit, but chief executive Mike Smith has warned the subdued economic outlook could hamper the bank's ability to grow from here.
The first half cash profit result was up five per cent compared to the same period a year ago, beating the four per cent growth analysts had expected.
The bank also kept investors happy by increasing its interim dividend three cents to 86 cents.
Mr Smith warned the outlook for the economy could make it harder for ANZ to grow earnings in the short term, though he remained confident in the longer term performance of the bank's Australian and Asian operations.
"For the foreseeable future, we will be operating in a lower growth environment in which there will continue to be occasional volatility and shocks," he said.
"Australia has its own challenges to the economic outlook, which stem from the ageing population, out fiscal position, low productivity growth.
"But on the bright side we are benefiting from Asia's growth, so overall I'm very positive about Australia and New Zealand."
He said ANZ would continue to invest in both its Australian and Asian operations and was willing to accept a short-term increase in costs as it looks to boost future returns.
"We are managing expenses carefully, however we have been prepared to accept a slightly higher run rate on costs in the short term where investment can deliver sustainable growth and returns."
ANZ recorded lending growth of 10 per cent during the half, which helped increase profit from its Australian retail division eight per cent.
Meanwhile, ANZ's International and Institutional Banking business lifted its profit seven per cent after a strong performance from its much-talked about Asian operations offset a weakness in its home market.
"The weakness, if there was one, was in the institutional business in Australia, where we've had very significant margin compression ... had we not had the Asian business we would have been in serious trouble," Mr Smith said.
ANZ's net interest margin, the profit it makes on loans, dropped 11 basis points during the half to 2.04 per cent due to tough competition among lenders.
Mr Smith said the bank was also looking at ways to increase capital reserves, including through its dividend reinvestment plan or by selling off non-core businesses, as it prepares for a possible move on reserve requirements from the Australian Prudential Regulatory Authority.
"There is no doubt that there will be a growing need for more capital, the regulatory environment is such that more capital is a given, the question is how much and by when."
ANZ shares gained 88 cents, or 2.65 per cent to $34.12, while its fellow big four banks finished the day in the red following the Reserve Bank's interest rate cut.
The bank's performance outshone that of rival Westpac, which on Monday recorded a flat $3.78 billion half year profit, $100 million below analysts' expectations.
ANZ'S SOLID HALF
* Cash profit of $3.7b, up 5pct from $3.5b in 2013/14
* Net profit of $3.5b, up 3pct from $3.4b
* Interim dividend of 86 cents, up from 83 cents
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