Authors: Roshan Thomas and Himanshi Akhand

(Reuters) - Australia's No. 2 mortgage lender Westpac was missing expected first-half profits on Monday when Margins signed, and warned that shifting global trade policy was shaking, which could raise capital costs and put its stock down 3%.

"Geopolitical uncertainty is a key risk, as high as it has been for a long time," Anthony Miller said.

"This could lead to softer consumer spending and business activity. The spread of funds has widened since the end of the first half of the year and volatility may increase the cost of funds," he told reporters on a conference call.

Westpac's net profit fell 1% to $3.32 billion ($2.14 billion) for the six months to March, with a lack of visible Alpha consensus estimate of $3.43 billion.

The bank's operating costs increased by 6% due to investment in technology, and its Solidarity Simplification Program offsets the increase in the amount of housing, commercial and institutional loans.

Westpac's Net Interest Rate (NIM) - The difference between interest earned on loans and interest paid on deposits fell to 1.88% from last year.

Its core net interest margin is 1.80%, and the loan spread tightened by three basis points as loan spreads tightened in the competitive mortgage market and customers turned to low-profit savings accounts.

The bank's stock initially fell 3.8%, and as of 0104 GMT, the bank's stock fell 2.7%, underperforming in the wider market.

"While management is growing toward business and institutions, the challenge appears to be due to growth in a competitive environment," Citi analysts said in a note.

“We expect the market to question the sustainability of this growth, especially as the gradual impostor and duplicate portfolios converge on site, reducing the critical leverage of support for NIM.”

Westpac said mortgage defaults and damage fees remained low, with Australia's home loans delayed by more than 90 days, and by the end of March, the total loan ratio of total loans fell to 0.86% from 1.12% six months ago.

The result is two days after the Australian Labor Party’s second straight term won its historic second term, and in elections, housing costs are a key issue.

Miller said he was eager to solve a range of problems with the administration, “including providing more housing, ensuring cash in a sustainable long-term model, and challenging ourselves as to how we move forward in a country.”