* Q1 unaudited net profit A$1.5 bln

* Q1 core NIM 1.80%

* CET1 ratio at 12.3% as at Dec-end

Feb 19 (Reuters) - Westpac Banking Corp said it sees scope for monetary policy in Australia to become less restrictive within the next year, while reporting a drop in its first-quarter unaudited net profit versus the prior six-months' quarterly average.

Westpac's shares were down 0.2% at A$24.515 as at 2324 GMT, after having fallen as much as 0.9% earlier in the session.

Australia's No. 2 mortgage provider says it expects the economy to remain resilient, supported by low unemployment and healthy balance sheets in the corporate sector.

The country's central bank has jacked up interest rates by 425 basis points since May 2022 to tame inflation, which is still well above the target of 2-3%.

"The economic slowdown, combined with abating inflationary pressures, should provide scope for monetary policy to become less restrictive within the next year," CEO Peter King said.

The lender's unaudited net profit for the three months ended Dec. 31 was A$1.5 billion ($978.60 million), down 6% from the quarterly average for the prior six months.

It cited the impact of notable items related to hedge accounting as a reason for the fall in profit.

"The massive exposure to the property sector coupled with a rapid rise in interest rates is now starting to bite," said Brad Smoling, managing director at Smoling Stockbroking.

"If we don't have a reduction of interest rates this will be a major issue for Westpac and other Australian Banks to deal with," Smoling added.

Westpac's margins also took a hit as nearly two years of high interest rates raised cost of mortgage repayments. That along with sticky inflation spurred intense competition among banks, which has flattened their profit margins.

The lender's core net interest margin for the three months ended Dec. 31 was 1.80%, down 4 basis points from second half of 2023.

"From a credit quality perspective, we saw a reduction in business stress while a rise in 90+ day mortgage delinquencies reflects the tougher economic environment," King said.

Mortgage payments delayed for more than 90 days in terms of the bank's total loan book for Australia stood at 0.95% as of end of December. That was 9 basis points higher than at the end of September.

Henry Jennings, a senior analyst at Marcustoday Financial Newsletter, said a slight rise in the 90+ day delinquencies was hardly unexpected and shows the bank is managing the current economic environment well.

The bank's common equity tier 1 ratio, a closely watched measure of spare cash, stood at 12.3% as at December-end, down from 12.4% as at September-end. ($1 = 1.5328 Australian dollars) (Reporting by Echha Jain and Sameer Manekar in Bengaluru; Editing by Angus MacSwan, Matthew Lewis and Himani Sarkar)