(Reuters) -Australia's ANZ Group ( ANZGF ) reported largely flat first-half cash earnings on Thursday as competition pressured margins and a rise in impairments offset lending growth, while flagging that market activity is likely to realign due to global trade risks.

"Trade flows are interrupted, customers are forced to adjust strategies, and capital is more cautious," ANZ's outgoing CEO Shayne Elliott said on a conference call.

"While we focus on risk settings in the short term, global economic and market activity is likely to realign rather than decline, and we will continue to follow our customers and facilitate that realignment as they move their capital, rethink their manufacturing base, or change their supply chains," he added.

The country's fourth-largest bank said cash profit was A$3.57 billion ($2.29 billion) for the six months ended March 31, compared with A$3.55 billion a year earlier and the Visible Alpha consensus estimate of A$3.54 billion.

ANZ shares were down 2% as of 0053 GMT, compared to a 0.3% drop in the broader market.

Intense competition to sell cheaper home loans to customers hurt by higher interest rates and living costs has been pressuring the bank's margin.

In February, the Reserve Bank of Australia delivered its first interest rate cut since November 2020, and markets have priced in another quarter-point reduction later this month.

"While initial rate relief was welcomed by retail and commercial customers, we know many continue to face challenges," ANZ said.

Its net interest margin, a key measure of profitability, was stable at 1.56% compared with the corresponding first half a year ago, but narrowed 2 basis points from the April-September 2024 period.

Gross impaired assets increased 48% to A$2.52 billion for the first half - the highest since March 2021 - mainly driven by a rise in home loan restructuring.

This was partial offset by growth in loan volumes with the Australian retail division logging a home loan growth of 3% and core institutional lending rising 4%.

Meanwhile, ANZ also benefited from the strong performance of Suncorp Bank, whose A$4.5 billion acquisition closed last year after almost two years of scrutiny by financial regulators and treasury.

The results mark the end of Shayne Elliott's nearly 10-year tenure as CEO, with former HSBC wealth chief Nuno Matos taking over next week as ANZ works to address non-financial risk issues.

Last month, Australia's bank regulator increased the cash ANZ must hold in reserve by another A$250 million to A$1 billion, as it criticised the lender's failure to address wide-ranging problems with its non-financial risk management.

Moreover, ANZ's institutional division is also being investigated by regulators over its handling of government bond auctions after it overstated the value of government bonds.

"We are committed to making non-financial risk an equal area of strength," Elliott said.

The Melbourne-based lender declared an interim dividend of 83 Australian cents per share, in line with the year earlier.

($1 = 1.5557 Australian dollars)