Westpac New Zealand tightened its lending criteria for lending into Auckland's hot housing market in the second half of its just-completed financial year, sacrificing some lending growth to ensure it did not get burnt in any downturn.Westpac NZ CEO David McLean told Banking Day the bank had made 20 changes to its lending criteria in recent months to improve the quality of its mortgage lending, particularly to rental property investors in Auckland."We asked ourselves: 'where a market has been running really hot, as the housing market in particular in Auckland has been, are we, as a bank, writing business today that looks fine now, but we might regret in a downturn?'" McLean said."There's 20 things that I would say are tweaks or selective diallings down around the fringes of the market," he said, pointing to a reduction in the interest-only period for investors to five years from 15 years and a cessation of new lending to offshore investors because of problems verifying income."It's mainly Auckland, but we've seen house prices in the Auckland, Hamilton, Tauranga triangle have grown quite a lot, and now the contagion is spreading to Wellington and other geographies."McLean spoke after Westpac NZ reported its cash earnings fell four per cent to NZ$872 million for the year to September 30. Its net interest margin fell 12 basis points over the year to 2.13 per cent and charges for bad loans increased by NZ$12 million.Westpac slowed its mortgage lending growth to four per cent in the second half of the year from its annual growth rate of seven per cent and was below system-wide growth of over nine per cent.Westpac has been wary in lending to apartment property developers in Auckland, after being hit by bad loans in 2008 and 2009 when finance companies and developers collapsed in the lead-up to the Global Financial Crisis."We took quite a bath on that kind of lending and ever since then we've been very cautious. We tightened up back then and we're not a big player in that market," he said.Westpac's profit was also hit by an increase in impairment charges to NZ$50 million in the second half of the year from an unusually low NZ$9 million in the first half of the year. Total impairments of NZ$59 million for the year were up from NZ$47 million the previous year.McLean said the majority of the increase was due to an increase in specific and collective provisioning for Westpac's NZ$5.7 billion of dairy lending after a review of the portfolio in the second half that assumed a dairy payout of NZ$4.25/kg. The percentage of the portfolio deemed to be "stressed" rose to 25.49 per cent in September from 10.4 per cent in March, with the percentage deemed to be "impaired" rising to 0.34 per cent from 0.13 per cent. McLean noted the outlook for the dairy payout had improved to closer to NZ$6/kg since the review and he was comfortable with Westpac's exposure to dairy."We're very comfortable with the level of provisioning