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NAB profit hit, but still worth $2-billion -

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PETER CAVE: These are dire times for banks around the world, with some in the United States and
Europe only surviving because of taxpayer-funded bailouts.

But as the global financial crisis continues to bite, one of Australia's biggest banks is still
managing to post a respectable profit.

The National Australia Bank's (NAB) half year profit out today is down more than 9 per cent to just
over $2-biillion as bad and doubtful debts hit the bottom line.

Here's our business editor, Peter Ryan.

PETER RYAN: The NAB is blaming tough market conditions for the 9.4 per cent fall in half year cash

The $2-billion bottom line might be respectable and in line with expectations, but it's been
savaged by a big rise in bad and doubtful debts.

Six months ago the charge was $700-million; now it's more than doubled to $1.8-billion.

Chief executive Cameron Clyne is battening down for more bad news as the recession deepens.

CAMERON CLYNE: We are not providing guidance but I think you would have to say though that the next
six to 12 months will be difficult.

I think we're now entering a period of economic downturn and with unemployment predicted to peak in
2010 I think it is a likely outcome that bad debts will continue to be an issue through 2010.

PETER RYAN: Cameron Clyne is predicting that while big business will continue to hurt, the outlook
is now becoming dire for many small and medium businesses as credit dries up and unemployment

CAMERON CLYNE: Obviously there are the large corporate impairments in the half and we flag that at
our first quarter trading update, a number of significant corporate impairments but as we have
flown in to the second quarter of this half, you are starting to see more smaller and medium sized
businesses become stressed, particularly those that rely on any form of discretionary income. That
is a sector that has become more stressed.

PETER RYAN: Even so, Cameron Clyne can see signs of life in the Australian banking sector.

For example, the NAB's revenue actually increased by 11.5 per cent to $8.5-billion, thanks to the
demise of many non-bank lenders who were once active in the mortgage market.

Balancing that out is a 7.5 per cent fall in earnings for nabCapital and a 28 per cent fall in the
wealth management arm MLC.

But more importantly, Mr Clyne thinks news is becoming 'less worse than expected' both locally and
in the United States and that Australia could be cushioned from a deeper recession.

CAMERON CLYNE: One thing that is pleasing is that we seem to have moved beyond what were a fairly
regular rounds of systemic shocks that we were having albeit a large scale crisis of confidence
from things like the Lehman Brothers or other things and obviously when you have those systemic
shocks, you get a significant freeze in the debt and the credit markets.

We seem to have moved beyond the systemic shocks. I think we are now into managing an economic
downturn. As to whether it has bottomed, it is difficult to say. I think the encouraging thing from
Australia's point of view is that we are only now going into this cycle whereas as I said, many of
the economies around the world have been in it for a year or more so if there is a prospect of a
return to global growth in 2010, that would suggest that Australia probably can't fall as far as
some other economies have.

PETER RYAN: The NAB has also been busy raising capital to strengthen its balance sheet, courtesy of
the Government guarantee.

Cameron Clyne says $16.5-billion was raised in the half year which represents 86 per cent of the
full year requirement.

CAMERON CLYNE: We want to maintain, at this stage, a prudent capital position given the uncertainty
in the cycle. That is obviously well above what rating agencies and regulators would see as
necessarily being required but the reality is, in an uncertain economic time we want to be prudent
and that is why we are topping capital up further.

PETER RYAN: But Mr Clyne had a diplomatic response on relations with the Federal Government, given
recent tensions over the NAB's decision to pass on nothing of the most recent cut to official
interest rates.

CAMERON CLYNE: We have got a very strong working relationship with the Government. I mean this is a
time when in fact, you would want and hope that the banks were working collaboratively with the

We have got a challenging time ahead for Australia and it's in everyone's interest that we work
collaboratively and we are very comfortable with that relationship.

PETER RYAN: The NAB is also testing its relationship with investors, confirming the dividend per
share will be cut by 24 per cent - the first time since the last recession in 1991.

PETER CAVE: Our business editor, Peter Ryan.