By Rajasik Mukherjee

Feb 17 (Reuters) - Shares of Australia's Bendigo and Adelaide Bank BEN.AX sank as much as 19% on Monday, recording their worst day ever, after the regional bank's first-half profit trailed analysts' expectations as its margins came under pressure.

The stock tumbled to its lowest level since May 30, before recovering slightly to end 15.3% lower, which made it the top loser on the benchmark ASX200 .AXJO index.

The lender's cash net profit of A$265.2 million (about $169 million) in the first half of the year was not only a 10% decline from the prior six-month period but also missed analysts' estimate of A$278.4 million, according to data from Visible Alpha.

"Our earnings have been challenged both on the income and expense lines. Income was impacted by margin pressures, driven by higher funding costs to support accelerated lending growth," said CEO Richard Fennel.

Bendigo's net interest margin -- the difference between interest earned on loans and paid on deposits -- dropped by 6 basis points sequentially to 1.88%, which Citigroup analysts said also fell short of market expectations.

The company said its deposits were skewed towards higher-cost ones due to increasing offset account balances and customers' preferences for longer-dated term deposits.

Australia's interest rates have stayed at a 13-year high for the past year, which discourages customers from taking loans and instead parking their money in high-yielding accounts, forcing banks to pay more to win customers in a competitive market.

Bendigo's customer count increased by 5% to just over 2.7 million in the period. In particular, customers in its digital lending business Up, which offers among the lowest rates on loans, jumped 13.2% to top one million.

"In our view, this result reads fairly poor, with a lot of work to do and delivery needed to meet expectations on full-year numbers," UBS said in a note. ($1 = 1.5723 Australian dollars)

(Reporting by Rajasik Mukherjee in Bengaluru; Editing by Savio D'Souza)

((Rajasik.Mukherjee@thomsonreuters.com;))