Westpac New Zealand eased back on its mortgage lending growth in the first half of the year to avoid further pressuring margins and taking on extra risk in an "increasingly frothy" housing market.Westpac New Zealand reported cash earnings of NZ$445 million for the six months to the end of March, which was down five per cent from the six months to September 30 and up two per cent from the same half a year ago.Tightening net interest margins and a rise in operating spending on staff training and digital banking technology more than offset a sharp fall in bad debt charges, but it was the slower-than-market growth in mortgage lending that stood out.Westpac New Zealand increased mortgage lending 6.3 per cent in the first half from a year ago, which was weaker than the eight per cent growth seen in the market overall.Chief Executive David McLean told Banking Day Westpac had slightly reduced its market share ambitions in a hotly competitive market where borrowers opted for lower rate fixed mortgages with tighter profit margins."We feel the market is intensely competitive and we don't want to fuel a price war or start a price war and we've got to be cautious in terms of risk," McLean said."When we stress test our current portfolio we're not worried about it particularly, but we do have to be careful in a market that looks increasingly frothy and over-heated at times in Auckland to make sure that we're not writing business that we'll regret later," he said.Westpac's net interest margin fell to 2.15 per cent from 2.23 per cent in the same half a year ago and 2.27 per cent in the September half. McLean said Westpac ultimately aimed to match or exceed the market's growth rate in mortgages over the longer run, but was comfortable not sacrificing margin or increasing risk when housing markets were highly valued.Westpac did, however, out-grow the market in business lending, and continued to grow market share in agricultural lending, where it has previously been underweight. Westpac's business lending grew 9.2 per cent, while the wider market grew 8.8 per cent.McLean, who grew up on a dairy farm, said Westpac was comfortable continuing to grow lending to dairy farmers, despite the prospect for a third year of low payouts and having 7.8 per cent of its loans to farmers categorised as 'stressed', up from 2.9 per cent a year ago."I feel quite comfortable writing loans at this stage in the market because the business we're writing now at these levels of dairy payout means that if farmers can show their viability in this environment, then they must be bloody good farmers," he said."I feel that we'll be writing our best loans at the low point in the cycle."Another feature of the result was an eight per cent rise in operating expenses to NZ$457 million, which Westpac said was linked to a brand re-launch featuring former All Black Captain Richie McCaw, staff training and new digital banking technology. McLean said new