Australian banking giant Westpac reported a better-than-expected 11 percent increase in first-half net profit to a record Aus$3.3 billion (US$3.4 billion). Australia\'s second largest bank by market capitalisation said cash earnings, the preferred measure which strips out volatile items, were up 10 per cent to Aus$3.53 billion against the first half last year. Analysts had forecast cash profit of Aus$3.47 billion for the six months to March 31. The bank noted that all its Australian businesses produced double-digit cash earnings growth and costs had also been reduced. Despite the record results, chief executive Gail Kelly said: \"The operating environment continues to be challenging, with subdued lending growth. \"However, in line with our strategy, we are actively targeting opportunities in higher growth areas where conditions are more favourable such as deposits, wealth, trade finance and natural resources.\" \"Momentum continued to build over the period, with all our Australian businesses producing double-digit cash earnings growth,\" she said. Westpac said lending increased three percent to $15 billion, driven by Australian housing loans. Customer deposits soared 12 percent to $360 billion. \"However you look at the headline numbers from Westpac this morning, they can only be seen one way -- investor pleasing,\" said IG market strategist Evan Lucas. Kelly said that Westpac\'s capital strength helped it to pay a higher interim dividend of Aus$0.86 per share as well as a surprise special dividend of Aus$0.10. In early trade, Westpac shares rose 2.5 percent to Aus$34.71 while the benchmark ASX200 index was up 0.73 percent at 5,167.5 points. A rally in Australian bank shares in the past 12 months has pushed the market value of Westpac above $100 billion with some analysts warning of a possible bubble in the sector.