(Reuters) -Commonwealth Bank of Australia,, the country's biggest lender, said on Wednesday first-half profit rose slightly as an improving economy enabled it to slash loan impairment charges, sending its shares to a record high.

The result came despite what the bank called a challenging period for its customers who have struggled with a cost of living crisis for the past two years.

Income tax cuts that took effect last July and rising wages have increased the amount people can save and spend, CBA said, adding that loan hardship cases had declined 15% from June to December and most borrowers were still ahead on repayments.

"We expect Australia will follow offshore economies with an easing cycle starting in 2025", said CEO Matt Comyn.

"This should provide some relief to many households and improve business confidence."

Cash net profit increased 2% to A$5.1 billion ($3.2 billion) in the six months to end-December from a year earlier, bolstered by a 23% slide in loan impairment charges and a whisker ahead of a Visible Alpha consensus estimate of A$5.06 billion.

Without that boost from the drop in loan impairments, profit would have come in nearly flat.

CBA also declared an interim dividend of A$2.25 per share, up from A$2.15 a year earlier, its highest first-half payout ever.

CBA shares climbed 1% to their highest intraday level of A$164.71 by midsession, extending a year-long rally which has seen the company become Australia's biggest by market capitalisation. The broader market was up 0.2%.

Citi analysts said in a research note that while the result had met market expectations, "we don't see anything to justify the recent share price run."

CBA, which has a quarter of the country's A$2.2 trillion mortgage market, said costs jumped 6% in the six-month period as it spent to improve its technology infrastructure and enhance its generative AI and data infrastructure capabilities.

The lender's net interest margin, the gap between loan interest and the interest paid to depositors, rose 2 basis points from last year to 2.08%.

($1 = 1.5886 Australian dollars)