ANZ Bank has hinted at further interest rate rises, despite its stronger than expected $1.48 billion first quarter profit.

Chief executive Mike Smith said the bank’s margins would “continue to be squeezed” as wholesale funding costs remain higher and competition for deposits continues.

“Credit growth is going to be lower for the foreseeable future, particularly in Australia and New Zealand,” he said.

“The real issue in margin is of course Australia, where margins are, as everyone knows, under pressure,” Mr Smith told analysts and the media.

“Last week we took some measures to mitigate this, and it is something we will need to continue to actively manage.”

ANZ lifted its standard variable home loan rate by six basis points last week after the Reserve Bank of Australia (RBA) left the cash rate on hold.

ANZ’s international expansion strategy proved the main driver of profit growth in the three months to December 31, with good results in Europe, America and Asia offsetting tough conditions in Australia, the bank said.

ANZ posted an unaudited underlying profit for the period of $1.48 billion, up 5.7 per cent from $1.4 billion in the previous corresponding period.

The bank’s margins fell by much less than its three major rivals, due to an improvement in New Zealand and stability in its other offshore divisions.

In Australia, pressure on margins was much more intense, and they fell by nine basis points from the second half of fiscal 2011.

Morningstar analyst David Walker said the profit result, plus other factors such as margins and loan growth, were positive news for ANZ.

“Certain other trends and guidance are encouraging, so we expect to make a marginal upgrade to our full year forecast,” he said.

Expectations are for a rise on ANZ’s $5.65 billion underlying profit in fiscal 2011.

Mr Smith defended ANZ’s interest rate rise last week and recently announced job cuts, saying banks were undergoing a “fundamental structural shift”.

Those changes resulted in a three per cent rise in costs in the first quarter.

ANZ’s lending expanding by two per cent in the three months to December, in line with customer deposit growth.

Revenue was up by about five per cent to $4.3 billion, with improved trading income from its global markets division partly offset by higher deposit and wholesale funding costs, ANZ said.

ANZ shares ended 35 cents, or 1.65 per cent higher, at $21.55.