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SYDNEY, Feb 7 AAP

February 07 2013, 10:22AM

National Australia Bank is on track to post a $6 billion full-year cash profit after improving earnings in the first three months.

The bank met analyst expectations by reporting unaudited cash earnings of $1.45 billion for the three months to December 31, a four per cent increase on the same period in the previous year.

Cash earnings were also up 14 per cent on the three months to September 30.

NAB shares were up 29 cents, or 1.03 per cent, at $28.40 at 1015 AEDT, a larger rise than any of its rivals.

"The strong start to the year supports our positive view on NAB and the bank is on track to a fiscal year 2013 profit of around $6 billion," Morningstar analyst David Ellis said.

The bank made a cash profit of $5.43 billion in fiscal 2012.

First quarter cash earnings rose due to a three per cent increase in revenue, thanks to an improved performance in wholesale banking, NAB said on Thursday.

"This is a pleasing result, especially given operating conditions remain challenging both in Australia and the UK, notwithstanding recent improvements in financial markets," chief executive Cameron Clyne said in a statement.

But the bank's net profit continued to fall, with unaudited net profit at $1.26 billion in the three months to December, down from $1.6 billion in the previous corresponding period.

The main reasons for the difference between net profit and cash earnings were losses on fair value and hedging impacts, NAB said.

NAB's net profit in the year to September 30, 2012, fell by 22 per cent to $4.08 billion, due to massive costs associated with bad debts and the restructuring of its troubled UK businesses.

That restructuring, of the core UK banking business, was proceeding well, Mr Clyne said on Thursday, with costs lowered and its funding mix improved.

Overall staff numbers fell by about 500 in the three months to December, largely due to the UK restructure.

NAB's overall cost of bad debts was $554 million in the three months to December, a fall of 10 per cent.

But there was a rise in bad debts in its personal banking division, NAB said.

NAB's costs also rose, by four per cent, in the three months to December, due to wage increases and lower performance-based pay in the preceding months.