By Jackie Range

SYDNEY (Reuters) - Westpac Banking Corp <WBC.AX> notched up record profits and unveiled a special dividend in a stellar year for Australian banks and expectations are high that the industry will deliver more earnings growth in 2014.

Tight cost control, signs of a pick-up in credit growth and likely continued drops in bad loans have analysts forecasting a sixth straight year of record combined profits for Australia's Big Four banks to A$28.6 billion (17 billion pounds) after A$27 billion in the past financial year.

Westpac booked cash profit of A$7.1 billion, its fourth year in a row of record profit and in line with expectations.

The results were bolstered by a 30 percent fall in bad debts, reflective of a broader trend among the banks which in recent years have seen reduced expenses for non-performing loans become a key contributor to profits.

"As long as the economy continues to chug along and doesn't fall into a recession, bad debt expenses won't increase significantly, and will probably continue to ease down," said David Ellis, an analyst at Morningstar.

Westpac also joined Australia and New Zealand Banking Group Ltd <ANZ.AX>, Commonwealth Bank of Australia <CBA.AX> and National Australia Bank Ltd <NAB.AX> in rewarding shareholders with dividend hikes.

It lifted its final dividend 5 percent to A$0.88 per share and unveiled a special dividend of A$0.10 per share.

The sector's strong earnings run has come despite some leaner times in bank lending. Annual Australian credit growth stands at 3.3 percent, down from some 15 percent in 2007 while housing credit growth is at around 5 percent, down from 20 percent a decade ago.

But Westpac noted encouraging signs.

"There is no doubt that domestically we are seeing a pick-up in consumer confidence which we expect will translate to a gradual increase in credit growth," Chief Executive Gail Kelly said in a statement.

Westpac's common equity tier one capital, a measure of the bank's ability to absorb unexpected losses, rose 94 basis points to 9.1 percent. Impairment charges fell to A$847 million, compared with A$1.2 billion a year ago.

Westpac's shares were flat on the earnings, with the broader market up 0.3 percent. Its shares have jumped by a third for the year to date.

(Additional reporting by Thuy Ong; Editing by Lincoln Feast and Edwina Gibbs)