UPDATE 1-Bad debts hit Australia's ANZ, hard times ahead

* ANZ bank profit tumbles 43 percent, bad debts soar

* Expects bad debts to worsen in H2, continue in 2010

* Cuts interim dividend 26 pct (Adds background, CEO quote)

SYDNEY, April 29 (Reuters) - Australia and New Zealand Banking Group (ANZ.AX), the nation's fourth-largest lender, reported a 43 percent slide in first-half profit on Wednesday, missing market expectations, as bad debt provisions doubled.

The bank also cut its interim dividend by 26 percent, in line with previous guidance, but warned investors already rattled by soaring bad-debt charges among Australia's biggest banks that provisions were only likely to worsen in the second half.

"The expected slowdown in Australia and New Zealand is now playing out with the outlook for provisions in the second half likely to be somewhat more difficult than the first half," Chief Executive Officer Mike Smith said in a statement.

"And we expect that situation to continue through to early 2010," he added.

Australian banks have avoided the banking disasters that have swept other developed nations but as Australia finally enters recession, the banks face slower mortgage and business lending, higher funding costs and growing bad debts as unemployment rises.

On Tuesday, the nation's largest lender, National Australia Bank (NAB.AX) (NAB), helped drag down shares in the entire sector after it ramped up bad-debt charges and also cut its dividend.