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Australia's NAB Q3 profit up, UK challenges remain

National Australia Bank posted a 7 percent rise in third-quarter unaudited cash profit on Monday, led by higher mortgage growth and lower bad debt charges, while flagging higher provisions for its troubled UK business.

NAB, the nation's fourth biggest bank by market value, said it will need to make an additional provision of at least 245 million pounds ($410 million) for its UK operations for both interest rate hedging products and payment protection insurance.

NAB's British business, which includes Yorkshire and Clydesdale bank branches, has been weighing on its performance and investors are watching for the bank's potential exit from the UK assets.

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CEO Andrew Thorburn also cautioned that a Scottish vote in favor of independence next month may lead to "significant additional costs and risks for Clydesdale Bank."

Scotland votes on Sept. 18 on whether to end 307 years of union with England and leave the United Kingdom. Polls suggest that the campaign to reject independence has a substantial lead, although as many as a quarter of the electorate are undecided.

NAB reported unaudited cash earnings, which exclude one-offs and non-cash accounting items, of A$1.6 billion ($1.49 billion) for the quarter to end of June. It did not give a year-ago comparison in its trading update, which does not provide as much detail as a full earnings statement.

Read MoreAustralia central bank holds rates at 2.5%

Cameron Spencer/Staff | Getty Images News | Getty Images

NAB is due to report full-year results in November.

Its UK banking cash earnings were lower in the quarter, while the commercial real estate portfolio reported a "modest loss", NAB said.

The bank's Basel III capital ratio fell to 8.46 percent at June 30 due to the impact of the interim dividend, it said. At the end of March, that ratio was 8.64 percent.

Read MoreAustralia central bank sticks to low rate stance

Australia's "Big Four" banks - NAB, Australia and New Zealand Banking Group, Commonwealth Bank of Australia and Westpac Banking - are investor favorites for their lofty dividends and record profits.

But NAB shares have under-performed its rivals, partly due to problems at its UK businesses.

Its Clydesdale Bank has been compensating customers after discovering in April 2009 it had miscalculated repayments on 42,500 mortgages.

Last month, NAB agreed to sell a $1 billion portfolio of mostly non-performing UK commercial property loans, and said it would continue to look at accelerating the sale of non-core assets.

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