Margin recovery has surfaced across the banking sector as a dominant theme of the December half trading period, with ASX-listed Auswide Bank the latest lender to improve earnings despite rising costs and a slowdown in loan volumes.Auswide posted a 10 per cent rise in interim profit to A$8.06 million as the bank's net interest margin rose six basis points to average 1.96 per cent for the six months to the end of December.The interim profit reporting season indicates that out-of-cycle mortgage rate rises induced by the regulatory clampdown on investment lending have been the main drivers of earnings growth at large and small banks.Bendigo Bank last week reported a net interest margin of 2.36 per cent - up 19 basis points on the June half and the interim NIM of CBA's retail banking division soared to a decade peak of 3.01 per cent.Auswide managing director Martin Barrett said the bank's cost of funding should derive some benefit from recently being assigned ratings by Fitch and Moody's.Both agencies have given investment grade credit ratings of BBB+ (Fitch) and BBB (Moody's)."We now have a funding advantage that should help to protect our interest margin going forward," Barrett said. "At the moment we are deriving a benefit from those ratings, but we simply don't know whether the cost of wholesale funding has bottomed."Barrett told Banking Day that Auswide had been less aggressive than some other lenders in repricing investment mortgages during the half."We repriced investment loans," he said."But we didn't reprice our interest-only book, so our investment borrowers weren't hit twice."Auswide indicated in its ASX filings that home loan volumes improved slightly in the second quarter and that the recovery was expected to accelerate in the second half."Our investment lending growth in the first half was effectively zero," said Barrett."In the current half we have more capacity to grow in the investor market."The bank also is hoping to drive growth in high margin consumer loans through proprietary and third party channels.Auswide has been developing an in-house credit card origination capability and has entered the final stages of testing a new card product."The project has been principally developed in-house and will allow personal banking customers to apply for Auswide Bank credit cards prior to the end of the current financial year," Barrett said."The bank will maintain its partnership with Citibank card services in respect of its existing card portfolio and providing platinum rewards credit cards to customers."