(Reuters) -No.2 Australian mortgage lender Westpac’s first-half profit missed expectations on Monday as loan spreads narrowed, and it warned that shifting global trade policies were rattling markets and tightening funding conditions.

Westpac posted a 1% drop in its net profit for the six months ended March to A$3.32 billion ($2.14 billion), missing a Visible Alpha consensus estimate of A$3.43 billion.

A 6% rise in the bank’s operating costs due to investments in technology and its UNITE simplification program offset growth in home, business and institutional lending volumes.

"Changes to global trade policies have impacted markets and funding for the bank," CEO Anthony Miller said in a statement.

"Geopolitical uncertainty is a key risk that’s as high as it has been for a very long time," he said, adding that Australia is well placed to handle the instability.

Westpac’s net interest margin - the difference between interest earned from lending and paid for deposits - fell one basis point from last year to 1.88%.

Its core net interest margin stood at 1.80%, narrowing by three basis points as loan spreads tightened in an intensely competitive mortgage market and as customers shifted toward lower-margin savings accounts.

"We’re managing margins actively in a competitive environment, achieving sustainable growth in our target areas," Westpac said.

The result comes shortly after the Australian Labor Party secured a historic second consecutive term on Saturday, in an election in which soaring housing costs were a key issue.

Miller said he’s eager to work with the government on a range of issues, “including providing more housing, guaranteeing access to cash with a sustainable long-term model and challenging ourselves as to how we compete as a nation going forward.”

Westpac declared an interim dividend of 76 Australian cents, up 1 cent from a year earlier.

($1 = 1.5513 Australian dollars)