Westpac New Zealand's core earnings rose just three per cent in the first half from the same half a year ago as a margin squeeze almost completely offset a six per cent rise in lending and tight cost control. Cash earnings growth was all driven by a fall in bad debt charges.Westpac New Zealand reported a 17 per cent rise in cash earnings from the same half a year ago because of a 94 per cent improvement in charges for bad loans to NZ$4 million from NZ$67 million in the same half a year ago.Core earnings were NZ$600 million in the first half, which was actually down from NZ$602 million in the second half of the last financial year. Cash earnings were NZ$432 million for the half, which was up from NZ$400 million in the second half, but only after a NZ$46 million improvement in bad debt charges.Chief executive Peter Clare said mortgage borrowers were moving from more profitable variable rate mortgages to less profitable fixed rate mortgages as interest rates rose, driving a six basis point fall in the net interest margin to 2.28 per cent.Clare said Westpac's net interest margins on variable mortgages were as high as 150 bps, while the margin on fixed mortgages was between 50 to 80 bps. "It is a significant drag on our business," Clare said of the margin squeeze. "I wouldn't expect it get any worse, but I don't expect it to fundamentally improve either."The variable share of Westpac's mortgage book fell 10 percentage points to 32.2 per cent in the half year from a year ago. "Clearly it's been quite a competitive market so we've seen a bit of margin compression, but the good news from the New Zealand economy's perspective is that we're starting to see more of a propensity, driven from business and consumer confidence, to go more 'risk on'," he said.Housing loans grew six per cent, with most growth in the higher deposit category with a Loan to Value Ratio of under 80 per cent. Clare said Westpac had reduced the pace of above 80 per cent mortgage lending ahead of the Reserve Bank's imposition of a speed limit from October 1.Westpac said its preparations meant it did not have to cancel any pre-approvals and it had been able to grow high LVR lending at more than 6 per cent of mortgage flow, which was higher than the rest of the market at under 6 per cent.