SYDNEY (Reuters) -The CEO of Australia's second-largest home lender Westpac said on Tuesday the nation's economy was showing signs of recovery with reduced mortgage stress and rising demand for corporate buyout activity.

Chief Executive Anthony Miller said Westpac had seen an improvement in mortgage stress levels, highlighted by fewer loans that were more than 90 days behind in repayments.

At the same time, demand for mergers and acquisition financing had picked up.

"The ongoing reduction in stress levels in the business bank is quite encouraging and so that only reinforces in my mind that the worst is behind us," Miller told the Macquarie Australia conference in Sydney.

"The pipeline of activity that we see in business bank is very pleasing. That is still to be executed. But there is a lot of interest and activity in the pipeline and growth in the last half, and that is expected to continue."

Corporate buyout activity in Australia was worth $20.54 billion in the first quarter of 2025, according to LSEG data, down 13.7% on the same time last year. But dealmakers hope interest rate cuts would help lift activity in the second quarter.

"Some of the M&A pipeline that we've been invited to participate in is quite a bit larger than we thought we'd see at this point of the environment we are in," he said.

Australia's central bank cut interest rates by 25 basis points in February to 4.1% in the first reduction in four years, and markets expect another rate cut on May 20, following a decline in first-quarter core inflation to a three-year low.

Westpac on Monday reported a 1% slip in first half net profit to A$3.32 billion ($2.14 billion) and a net interest margin contraction.

The results showed mortgage delinquencies and impairment charges were low, with repayments on home loans in Australia more than 90 days late as a proportion of total loans falling to 0.86% as of the end of March from 1.12% six months earlier.

($1 = 1.5506 Australian dollars)