Commonwealth Bank of Australia's New Zealand unit ASB has reported an 11 per cent increase in annual cash net profit thanks to an improvement in net interest margin and continued cost control.ASB cited an expansion into the higher margin corporate and rural lending areas and a slight reduction in market share in the hotly-competitive home loan market.ASB's cash net profit rose to a record-high NZ$776 million in the year to June 30 as its net interest margin rose 13 basis points to 2.38 per cent and the bank reduced its cost to income ratio by 200 bps to 38.9 per cent.Chief executive Barbara Chapman told Banking Day the strong New Zealand economy and ASB's focus on diversifying its loan book into the bank's non-traditional areas of rural and corporate lending helped improve margins.  Bad debt charges were flat at NZ$56 million for the year.The former Auckland Savings Bank, which has been the strongest mortgage lender in the biggest and fastest growing city of Auckland, eased back on its mortgage lending growth through the year and sacrificed some market share.ASB's share of the home loan market fell to 21.9 per cent by June 30 from 22.3 per cent a year earlier as it grew home lending at an annual rate of three per cent, which was lower than banking system-wide growth of 5.2 per cent.Meanwhile, it grew business and rural lending by eight per cent, more than double system-wide growth of 3.7 per cent.Chapman said ASB's push into rural and business lending helped improve the bank's net interest margin and narrow the gap between ASB's margins, which have been the lowest of the Big Four, and ANZ, which has been the highest. She cited a narrowing in the gap between the highest and lowest in the sector from 64 bps two years ago to 20 bps now."There's been a real narrowing of margin in the sector. A lot of that for us has been driven around diversification into higher margin areas of commercial, corporate and rural, where we haven't been strong," she said."There's been a clustering of margin in amongst the banks and for us that represents the diversification we've had."ASB had also improved its margin by growing retail term deposits by 6 per cent. Chapman said she was very comfortable with ASB's slight market share drop in home lending. "We've sacrificed a little bit of market share and I'm completely comfortable with that," she said."It's not as if we're out of the market. We're just not doing some of the deals our competitors are doing and just being prudent about what we do."In recent weeks the big banks have been cutting their low-margin two year fixed mortgage rates to under 6 per cent and offering thousands of dollars of 'cash-back' in deals to win new customers.