UPDATE 1-Nationwide sees rising competition as banks lend again

* Nationwide H1 profit up 83 pct, margin improves

* Overall lending lower than same period last year

* CEO says banks are re-entering marketplace (Recasts, adds comments from chief executive)

By Matt Scuffham

LONDON, Nov 24 (Reuters) - Nationwide, Britain'sbiggest customer-owned lender, warned of increasing competitionon Tuesday, as banks begin to lend again after several yearsspent slimming down and building capital reserves.

Britain's third-biggest provider of home loans and savingsproducts, Nationwide reported an 83 percent rise in underlyingprofit as the margin it made on loans improved. But the groupsaid overall lending, including home loans, was lower than inthe same period last year.

Chief Executive Graham Beale said Nationwide had seenincreased competition from Lloyds Banking Group andSantander in particular, adding that banks in generalwere lending more to individuals.

"They've been deliberately out of the market for aconsiderable period of time now and we've seen them re-enter --so inevitably I think we're going to not have quite the samefreedom within the marketplace that we've enjoyed for quite aperiod now," Beale told Reuters.

Nationwide reported an underlying profit for the six monthsto Sept. 30 of 606 million pounds ($950 million).

The lender benefited from an improvement in its net interestmargin -- the difference between the interest it lends at, andwhat it pays to savers -- which rose to 1.48 percent from 1.13percent the year before.

Beale said Britain's housing market was beginning to slowdown after a strong recovery in the latter half of 2013 and thebeginning of 2014. However, he said there was unlikely to be anydramatic slowdown.

Nationwide said that it had increased its share of thepersonal current account market to 6.6 percent from 6 percent ayear ago. The lender is offering interest of 5 percent a year onsome accounts to entice customers and help it to reach itstarget of a 10 percent market share.

Nationwide is seeking to challenge the dominance ofBritain's four biggest banks and pick up customers disillusionedby scandals including the mis-selling of loan insurance and theattempted rigging of foreign exchange markets.

However, the big four of Lloyds, Royal Bank of Scotland, Barclays and HSBC continue to holdabout 77 percent of Britain's 65 million personal currentaccounts, according to Britain's competition watchdog which isinvestigating the industry.

(1 US dollar = 0.6376 British pound) (Reporting by Matt Scuffham; Editing by Freya Berry and ClaraFerreira Marques)