Australia's NAB Profit Rises, Lifts Bad Debt Charge

National Australia Bank, the nation's top lender by assets, just beat analysts' forecasts with an 8 percent rise in first-half profit, helped by business lending growth and cost cuts.

NAB increased its charge for bad and doubtful debts by 86 percent to A$726 million, joining its Australian rivals in increasing provisions amid the global credit crunch.

NAB, the last of the country's top four banks to report its half-year results, also warned on Friday that credit growth was slowing in New Zealand and Britain, where it owns Yorkshire Bank and Clydesdale Bank, but remained stronger in Australia.

"Further slowing in system lending is expected in all three markets, but this has been long expected, as lending growth has been particularly high in all three economies through recent years," NAB said.

"Underlying asset quality remains sound," NAB Chief Executive John Stewart said in a statement.

To shore up its capital position, the group said it would underwrite any shortfall in participation in its dividend reinvestment plan to 100 percent.

Cash earnings rose to A$2.237 billion ($2.1 billion) for the six months to March from A$2.071 billion a year ago, and against analysts' forecasts around A$2.212 billion. Cash earnings, which strip out one-offs and non-cash accounting items, form the basis for dividends.

Analysts had said NAB's profit would be the toughest to predict among the top Australian banks as it had revealed little about credit quality and was vulnerable in a weakening UK market.

As flagged in March, NAB booked a profit of A$225 million from its stake in the float of Visa, most of which it offset with a broad provision for loans expected to go sour in tougher economic times.

NAB is a margin lender to troubled Australian asset manager Allco Finance Group. It said the increased charges were to cover bad and doubtful debts it said it was mostly holding for a small number of corporate customers.

Australia and New Zealand Banking Group last month quadrupled its bad debt charges to A$980 million, while Westpac Banking Corp, considered the most conservative of Australia's banks, booked charges of A$433 million, up 87 percent on a year ago.

NAB reported operating expenses fell 3 percent to A$3.6 billion, and reaffirmed it would hold cost growth below inflation.

Australian banking earnings grew 17 percent to A$1.37 billion, spurred by business and corporate lending. Cash earnings in the UK rose 5.8 percent to A$311 million. In sterling, UK earnings grew 18 percent.

Net interest margin, a key measure of profitability, fell 15 basis points to 2.18, as funding costs increased.  NAB shares have fallen about 18 percent so far this year against a 10 percent fall in the broader market, and are trading at 10.4 times forecast 2008 earnings, lower than the bank's three main rivals.

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