Bank of New Zealand nominated risks from the commercial property and dairy farming sectors as a prime theme in the first half of the year.The two sectors make up 24 per cent of its total lending of NZ$55 billion as of March 2010. Of this, commercial property forms 14.5 per cent of the total loans while dairy farms make up nine per cent.Credit quality in these sectors continues to deteriorate even as business conditions in New Zealand superficially begin to improve.BNZ's level of impaired and 90 day past due assets increased 32 basis points to 1.85 per cent over the six months to March 2010.BNZ blames the decline of around 23 per cent in dairy payout rates from the 2008 high for the stress caused in that sector, though it adds it has always assessed future returns on dairy commodities on a conservative long-run basis to avoid reliance on cyclical price spikes.Among the other sectors, BNZ said housing saw some minor deterioration in asset quality.A breakdown of BNZ's lending portfolio showed the bank's exposure to mortgages fell to 47 per cent from 50 per cent in September, while commercial property increased to 14 per cent from 12 per cent, and other commercial fell to 10 per cent from 11 per cent. The rest of the portfolio composition remained flat.Impairments in the recent half was at NZ$88 million, level with the September half, and not much lower than NZ$99 million in the same period last year.Despite a steady level of impairments, BNZ reported increase in cash earnings to NZ$255 million in the March half period, up NZ$17 million from the September half.Surprisingly, BNZ's rise in earnings came from an increase in net interest income, which rose to NZ$595 million from NZ$565 million in the September half.  Westpac reported a drop in net interest income during this period while ANZ National reported largely flat net interest income.The higher earnings were reflected in an increase in the net interest margin, which rose to 208 basis points after falling to 196 basis points in September 2009. This was mainly on account of the favourable mix within the housing portfolio.