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* Big Four banks seen posting record cash profit in FY 2014
* Westpac's cash profit A$7.1 bln in line with consensus
* Westpac final dividend A$0.88 vs A$0.84 a year earlier
* Also issues A$0.10 special dividend
By Jackie Range
SYDNEY, Nov 4 (Reuters) - Westpac Banking Corp notched up record profits and unveiled a special dividend in astellar year for Australian banks, and expectations are highthat the industry will deliver more earnings growth in 2014.
Tight cost control, signs of a pick-up in credit growth andlikely continued drops in bad loans have analysts forecasting asixth straight year of record combined profits for Australia'sBig Four banks to A$28.6 billion, up around five percent fromthe past financial year.
While there seems little on the horizon to jar with theupbeat tone, the question of just how upbeat may in large partdepend on the health of the economy as Australia shifts awayfrom mining-led growth.
"If it's a mild recovery then earnings will bump along andpossibly go a bit higher. If it's a strong recovery thenobviously the banks will benefit from that," said David Ellis,an analyst at Morningstar.
Australia's economy is expected to grow 2.5 percent thisyear followed by 2.7 percent in 2014, somewhat slower rates thanthe 3.6 percent pace in 2012.
Westpac, the country's second-biggest bank by market value,rounded out the banks' annual earnings reports with a cashprofit of A$7.1 billion, its fourth year in a row of recordearnings and in line with expectations.
Its results were bolstered by a 30 percent fall in baddebts, reflective of a broader trend among the banks which inrecent years have seen reduced expenses for non-performing loansbecome a key contributor to profits.
Westpac also joined Australia and New Zealand Banking GroupLtd, Commonwealth Bank of Australia andNational Australia Bank Ltd in rewarding shareholderswith dividend hikes.
It lifted its final dividend 5 percent to A$0.88 per shareand unveiled a special dividend of A$0.10 per share.
CREDIT GROWTH
The sector's strong earnings run has come despite someleaner times in bank lending. Annual Australian credit growthstands at 3.3 percent, down from some 15 percent in 2007 whilehousing credit growth is at around 5 percent, down from 20percent a decade ago.
But Westpac noted encouraging signs.
"There is no doubt that domestically we are seeing a pick-upin consumer confidence which we expect will translate to agradual increase in credit growth," Chief Executive Gail Kellysaid in a statement.
Michael McCarthy, chief market strategist at CMC Markets,also noted that housing data over the last three months has beenpositive, boding well for the mortgage market - a key profitcentre for Australian banks.
An index for home prices in the country's major cities rosestrongly for a second straight month in October to anunprecedented high while parts of Sydney have seen close torecord auction clearances. Figures like these have fuelled talkof a housing bubble but the central bank has called such talk "unrealistically alarmist".
Among the banks, National Australia Bank is expected to showthe strongest jump in cash earnings in the current financialyear - some 5.1 percent to A$6.2 billion, according to anaverage of three analysts' projections.
ANZ is expected to log a 4.6 percent climb to A$6.8 billion,while Westpac's cash earnings are expected to rise 4.2 percentto A$7.4 billion.
Commonwealth Bank, Australia's biggest bank by market value,is expected to post A$8.1 billion in full-year 2014 cashearnings, up 3.6 percent. On Wednesday, it may reportfirst-quarter cash profit of around A$2.15 billion, up fromA$1.85 billion from a year earlier, according to Morningstar'sEllis.
Among the banks, ANZ with its focus on Asia, will be closelywatched. With its "super-regional" strategy, ANZ is seeking toposition itself as a pan-Asian player like HSBC Holdings Plc and Standard Chartered Plc, aiming to bring inbetween 25 and 30 percent of earnings from Asia-Pacific, Europeand America by 2017, up from 21.4 percent in its 2013 financialyear.
Westpac's shares closed 1.2 percent lower after itsearnings, while the broader market was down 0.4 percent. Itsshares have jumped by around a third for the year to date.
