Melbourne, Australia: ANZ is closing the gap with its major rivals and extending the positive earnings run of the Australian banks, with a 16 per cent surge in profit for the first four months of 2009-10.

The Melbourne-based bank recorded an underlying cash profit of $1.6 billion, which places it on track to reach a six-month annualised net profit of $2.41bn.

The market had expected an annualised profit of $1.91bn and analysts are now expected to upgrade their forecasts.

The trading update from ANZ propelled its shares up as much as 3.7 per cent and the positive sentiment helped buoy other major banks. By late morning, ANZ was up 61 cents, or 2.7 per cent, at $22.86, outpacing a 0.5 per cent gain in the benchmark S&P/ASX 200 index.

Among its rivals, National Australia Bank was 2.8 per cent higher, Westpac was up 0.5 per cent and the Commonwealth Bank of Australia had advanced 0.3 per cent.

In the first four months of its financial year, ANZ's income grew 8 per cent and the bank's group margins rose by 14 basis points which chief executive Mike Smith attributed to the "recovery of the higher funding costs and more sustainable risk practices”

In a briefing, Mr Smith said the better-than-expected performance of ANZ was also based on the rapid recovery of the Australian and global economies.

“This is not another Seinfeld trading update,”Mr Smith said.

“The improving trend in the credit environment is very significant and the economic cycle is clearly at a turning point.

“What I'm pleased about is that there are no surprises in this announcement. “The global and the Australian economic cycles are playing out as we were predicting, probably a little bit faster than we anticipated.”

ANZ's provision charges for potential bad debts is down 35 per cent on 2009 levels at $670m, while customer deposits rose 2.5 per cent in the first four months of the year.

“The business is performing as we expected during a difficult environment,” Mr Smith said.

“The new foundations that we have built around risk and governance is making ANZ a more predictable organisation for our shareholders.

“Banking is a long term game, not a quarter by quarter sprint, and our goal is to build a bank that is sustainable over the long term.”