* Full-year cash profit A$3.8 bln vs A$3.5 bln analysts' estimate

* Provision balances hits record A$5 bln

* Final dividend A$0.35, 49% of earnings, in line with regulator

* Moves to stop lending to thermal coal, new climate change policy

SYDNEY, Oct 29 (Reuters) - Australia and New Zealand Banking Group Ltd on Thursday beat market expectations with a rebound in cash earnings in the second half, helped by lower provisions for bad debts due to the pandemic that offset declining interest margins.

Australia's fourth-largest lender said it would lower dividends to put more money aside for potential losses due to the economic impact of COVID-19, and announced a new climate change policy to cut the carbon emissions it finances.

Cash profit for the second half was 66% higher than the first half at A$2.34 billion ($1.67 billion), boosted by provision charges that were over a third lower than in the first six months of the year.

While also lower than the most optimistic expectations for provision charges at the Melbourne-based bank, the second half's A$1 billion charge moved its loss provision balance to a record A$5 billion.

"Despite the environment, we feel in a really strong position to deal with this," Chief Executive Officer Shayne Elliott said in an earnings call.

"Things are going to get a bit tougher but that's ok. We've got a really strong balance sheet (and) really strong credit provisioning for when and if things go wrong."

With the Australian economy in its first recession in three decades, banks' growth prospects and margins are under pressure as interest rates sit at record lows and more debt goes bad.

Elliott's cautiously upbeat attitude came with little earnings guidance for the year other than an expectation that near-zero interest rates would lower net interest margins (NIM) - a key metric of profitability - by a further 3 basis points.

ANZ shares were down 2.9% amid a global sell-off that pushed the local market 1.7% lower, hit by renewed worries about surging coronavirus cases globally.

The bank's NIM in the second half fell 12 basis points to 1.57%, as clients repaid debt and switched to cheaper fixed loans. That was a steeper decline than the 7 basis point drop to 2.04% reported by its larger rival, Commonwealth Bank of Australia in August.

ANZ's core equity ratio rose 58 basis points in the second half to 11.3% at the end of September.

The lender declared a final dividend of 35 Australian cents per share - 49% of statutory earnings - in line with a directive by regulators asking that payouts be less than half the year's profit.

ANZ also announced it would no longer fund any new thermal coal mines or coal-fired power stations going forward, and that all lending to thermal coal companies would stop by 2030.

It will set targets to reduce the carbon emissions it finances, and put pressure on its largest carbon-emitting clients to establish plans in line with the Paris Agreement, a global emissions-cutting accord signed in 2015.

"Over time, we will move away from working with customers that do not have clear and public transition plans," it said.

($1 = 1.4027 Australian dollars) (Reporting by Paulina Duran in Sydney; Additional reporting by Nikhil Kurian Nainan and Shriya Ramakrishnan in Bengaluru; Editing by Shounak Dasgupta and Stephen Coates)