ANZ Bank's New Zealand operations reported strong lending growth in the first half as it grew market share in mortgage lending. This more than offset tighter margins and a rise in bad debt charges.ANZ NZ reported nine per cent lending growth in the six months to March from the same period a year ago, which drove a NZ$100 million increase in interest income. This was offset by margin compression, cutting net interest income by NZ$74 million, and by a NZ$26 million rise in provisions for bad debts. ANZ's net interest margin fell 15 basis points to 2.37 per cent as it grew its mortgage market share to 31.62 per cent from 31.17 per cent and as it grew its mortgage book by 9.3 per cent to NZ$70 billion. This was faster than the market's growth rate of eight per cent. ANZ NZ's cash profit rose five per cent to NZ$635 million after taking into account a change in the ANZ Group's policy on software capitalisation that brought forward software costs. ANZ NZ said its expenses fell three per cent to NZ$558 million once the effects of the software policy change were taken into account.Chief executive David Hisco said ANZ continued to outperform in the key Auckland housing market as it increased its staffing numbers in the fastest-growing and most populous city. He oversaw the move of ANZ's head office from Wellington to Auckland and the increase in its competitive intensity against the city's previously dominant player - Commonwealth Bank of Australia's ASB.Hisco said a third round of mortgage lending controls by the Reserve Bank was possible later this year, but ANZ would adjust to any new rules set by the central bank, which regulates New Zealand's banks. ANZ kept growing its market share through the first two rounds of controls, when the Reserve Bank limited high loan to value ratio lending and then tightened that limit even further for Auckland rental property investors."The Reserve Bank has got a difficult job in terms of trying to balance the needs of stability vs the plight of the first home buyer," Hisco told Banking Day. "If they change the rules, we adjust and conform - it will just be difficult for first home buyers," he said.Hisco said ANZ was happy with its dairy loan book of around NZ$12 billion, which it had been reducing as a share of total lending over the last five years to reduce ANZ's previous over-weighting to dairy farmers."We've put a lot of work into our dairy book over the last five years since the last downturn to impress on our farmers that cash-flow is important and the value of their farm, whilst it's good to know to borrow against, at the end of the day you need to focus on cash-flow and also understand the costs of operating," he said."There's been a number of customers that might not have wanted to hear that, so have gone to bank with another bank," he said.ANZ's share of agri-business lending has