ANZ Banking Group Ltd (ASX:ANZ), one of the big four alongside Commonwealth Bank, Westpac and National Australia Bank, announced on Friday a 37 percent rise in third quarter net profit as bad debts declined.

The major lender, which closes its books on its 2010 financial year on September 30, said in a third quarter update provided to investors this morning that it had posted unaudited underlying profits of $3.6 billion for the nine months to June 30. This reflects a 26 per cent increase from the corresponding period last year.

The actual last quarter saw ANZ's profits climb by $1.3 billion so far this year and underlines the improving trend of profitability across the banking sector.

ANZ's report follows just a week after the Commonwealth Bank revealed a record $6.1 billion of net profits for its 2010 financial year. The big four are this year predicted to notch up $20 billion of earnings between them by the time the rest of the sector releases earnings data in November.

Despite the strong performance, ANZ Chief Executive Officer Mike Smith joined CommonBank in warning that credit growth will remain soft due to an "unusually uncertain" global economic outlook.

NZ said that expansion in recent months has been modest as the recovery in global markets has begun to stall.

Net profit for the June quarter was A$1.3 billion ($1.16 billion). Provisions were 38 percent lower than the first-half average, the Melbourne-based bank said in a statement.

Mr Smith said, "Although Australia and to a lesser extent New Zealand are benefiting from Asia's strong growth, it's clear domestic credit growth will continue to be softer than we saw pre-crisis."

"We need to accept that banks around the world are facing permanently higher costs."

ANZ stocks gained 9 cents or 0.4 per cent in early trading to $22.49 as the overall market lost about 1 per cent.