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UPDATE 1-Australia's NAB cuts dividend, hit by rising costs

(Adds details on quarter, CEO comment)

May 2 (Reuters) - National Australia Bank Ltd posted a 7 percent rise in first-half cash profit on Thursday, but cut its dividend as the country's fourth-largest lender grapples with rising costs of compensating customers.

NAB, which has maintained a dividend of 99 Australian cents per share for every six months since 2014, cut its interim dividend to 83 Australian cents per share.

Its the first cut since 2009 and reduces the company's relatively high payout ratio compared to its three larger peers.

Cash earnings came in at A$2.95 billion ($2.07 billion) for the six months ended March 31, compared with A$2.76 billion a year earlier. The result was slightly below a Reuters poll of seven analysts, who forecast A$3 billion.

Just two weeks ago, NAB flagged an extra A$749 million in charges to refund customers, racking up a total of A$1.10 billion it has now set aside to deal with remediation. The first-half results include a hit of A$325 million from the extra provisions.

Australia's top four lenders have already set aside more than A$6 billion to cover remediation for wronged customers since a government-backed inquiry uncovered widespread misconduct last year.

The final report of the year-long inquiry singled out the then-CEO and current chairman of NAB for apparent unwillingness to accept responsibility.

The criticism eventually forced their resignations days later in February, with the lender now speeding up efforts to regain public trust and search for a permanent CEO.

"This has been a challenging period for NAB with the Royal Commission highlighting the need for us to take greater action to earn back the trust of our customers," said Philip Chronican, NAB's interim chief executive officer and chairman-elect.

If adopted, New Zealand's proposed capital requirements may also prove to be challenge for the Big Four Aussie banks, whose local units are the biggest lenders in the country, as they will then have to find ways to bolster their respective capital positions.

The lender's common equity tier 1 ratio was 10.4 pct as of March 31.

NAB, the least consumer facing bank among its larger peers, said its net interest margin - a key measure of bank profitability - fell 7 basis points to 1.79 percent due to rising competition in housing lending. ($1 = 1.4253 Australian dollars)

(Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Shounak Dasgupta, Stephen Coates)