Commonwealth Bank's New Zealand subsidiary, ASB, reported first-half cash profit growth of seven per cent as it squeezed out an extra 10 basis points of net interest margin and improved its cost-to-income ratio to more than compensate for only modest lending growth.ASB's mortgage lending rose three per cent in the six months to December, barely above the 2.8 per cent growth in overall mortgage lending. ASB competed hard with ANZ for mortgages in the second half of calendar year 2012, offering free tablet computers and "cash-back" to try to tempt National Bank customers to leave parent ANZ, as ANZ merged its computer systems and branding with National.Despite the more heated competition, ASB reported that its net interest margin rose in the first half of the financial year compared with the same half a year ago. This was thanks to lower international funding costs and the ongoing benefits of a shift by customers, since 2009, from less profitable fixed mortgages to floating mortgages. However, ASB noted that much of the competitive action through the period had been back into less profitable fixed mortgages, which was reflected in the net interest margin growing just five basis points between the first half of calendar year 2012 and the second half of 2012.ASB managed much stronger lending growth in business and agribusiness than in housing, and it out-paced the wider market in these sectors. ASB's farm lending grew 12.7 per cent year-on-year, which was almost triple system growth to farmers. This suggests ASB's attempts to poach National Bank customers, who have a heavier bias towards rural loans, was more successful than its mortgage market share drive.Meanwhile, ASB also managed to sharply reduce its operating cost to operating income ratio to 41.6 per cent in the half, from 46.1 per cent six months earlier and 43.2 per cent a year ago. Loan impairment costs doubled, but only to NZ$28 million for the half year.ASB's cash net profit rose by NZ$24 million, to NZ$348 million, for the half, with the growth in net interest income adding NZ$34 million in the half. Operating expenses rose just NZ$11 million in the half from a year ago.