UPDATE 2-Australia's ANZ flags record capital levels as profit rises on housing boom

* Q1 cash earnings 9% higher y/y

* “Got to think about dividends” - CEO

* Core capital up to a record 11.7%

* Higher loan sales in Australia, record volumes in New Zealand (Recasts to add detail on capital, dividend, analyst comment)

SYDNEY, Feb 18 (Reuters) - Australia and New Zealand Banking Group on Thursday reported a higher first-quarter profit and said it was well-positioned to consider returning to investors some of the record levels of cash it holds in the aftermath of the pandemic.

Unlike global counterparts, Australia and New Zealand’s big four banks are emerging from the pandemic in a position to reverse some of the heavy bad debt provisions they set aside in 2020 to cover for potential loan defaults.

Australia’s fourth-largest lender said its profit for the quarter benefited from reversing 10% of a A$1.7 billion ($1.32 billion) bad debt provision charge it expensed last year.

All its units had performed better during the quarter, “with market share gains in our key home loan market in Australia as well as record home loan volumes in New Zealand,” Chief Executive Officer Shayne Elliott said in a statement.

Its core tier-one capital ratio, a closely watched measure of its spare cash, had increased to a record 11.7%, the Melbourne-based lender said.

“We’ve never had so much capital in terms of ratio or absolute amounts,” Elliott said. “We’ve got to think about the dividends and ... there are other capital management opportunities and of course ... our ability to redeploy some, maybe not all of that capital.”

Cash profit from continuing operations for the three months ended Dec. 31 was A$1.81 billion, a 54% increase from the average of the last two quarters and 9% higher than a year ago.

Credit Suisse analysts described the result as “positive” highlighting better-than-expected revenues.

ANZ shares rose 3.37%, while the broader market was 0.10% lower.

The Antipodean economies are recovering faster than expected following strict lockdown measures to control the spread of COVID-19, while extra-cheap interest rates and high government spending drive a surge in demand for home loans.

Westpac Banking Corp. on Wednesday also announced a rebound in first-quarter profit, benefiting from a large reversal of a provision charge taken during the pandemic, due to a positive outlook.

$1 = 1.2902 Australian dollars $1 = 1.2900 Australian dollars Reporting by Paulina Duran in Sydney and Shriya Ramakrishnan in Bengaluru; Editing by Shailesh Kuber and Sam Holmes