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NAB posts flat result as bad debts fall. -

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SHANE MCLEOD: Now to the global financial crisis or as you might be tempted to ask about
Australia's big four banks - what financial crisis?

The National Australia Bank says cash earnings for the first quarter of the financial year were
flat from the same time a year ago but they still came in at just over $1 billion.

The bank says doubtful debts are lower but it warns the economic recovery is fragile.

Sue Lannin reports.

SUE LANNIN: National Australia Bank may not have done as well as its competitors but it still made
$1.1billion in the December quarter.

National Australia Bank boss Cameron Clyne says a big fall in bad debts over the quarter helped.

CAMERON CLYNE: Cash earnings are $1.1 billion, up more than 20 per cent on the fourth quarter of
2009, largely reflecting a lower bad debt charge - $739 million in this quarter versus 941 in the
fourth quarter of '09.

In terms of economic conditions we're obviously seeing further improvements in key economic
indicators since the full year. And overall we remain cautiously optimistic about the economic
outlook across our key markets.

We consider caution appropriate because economies face an inevitable withdrawal of economic policy
stimulus and we're still waiting to see the solid upturn in private demand needed to get a
sustained global economic recovery.

SUE LANNIN: Unlike Westpac which saw December quarter profit surge by one third the National
Australia Bank has not been as aggressive in chasing new home loan borrowers. It made less money on
income from interest.

Its focus is lending to the corporate sector which is still suffering from the global financial
crisis.

CAMERON CLYNE: Deterioration in asset quality is beginning to slow, causing us to be more positive
about the credit outlook than we were in September 2009.

But we are yet to see the full impact of rising interest rates, a strengthened Australian dollar
and the end of various government stimulus packages so there may be some fluctuation in the
quarterly charges during 2010.

You've got to call it as you see it. Now I think we were given a bit of a whack at the full year
for being, calling out a flat-ish to margin outlook with a few other things. I actually think we've
been proven right over the last 12 months. It's been more fragile and there has been competition
coming back. So I think we're just trying to give a realistic assessment of how we see it.

SUE LANNIN: But the bank did make mileage out of Westpac's decision to raise home loans rates by
nearly double the official increase.

Cameron Clyne says there has been a pick-up in mortgage applications and new accounts.

CAMERON CLYNE: We are seeing a pick-up both through the broker but also a pleasing number through
the propriety channels.

SUE LANNIN: He says decisions on future rate rises will be made on a case by case basis.

As the Government prepares to end the guarantee on bank borrowing, chief financial officer Mark
Joiner says the National Australia Bank hasn't used it for more than half a year.

MARK JOINER: We're in an excellent position. We've done half, roughly half of our annual
requirement for funding, including raising subordinated debt at a quarter of the way through the
year.

And we've not touched any guarantees anywhere since I think last July. So we really consider
ourselves to be completely off the Government guarantee and are doing business in our own name.

SUE LANNIN: The bank is battling investment house AMP for control of insurer AXA Asia Pacific.

Cameron Clyne says the fight will go on.

CAMERON CLYNE: We see it as attractive. We've got an approved bid from the APH (Axa Asia Pacific
Holdings) board. We've done our due diligence. We're having ongoing discussions and we'll let you
know when we've got anything more to report.

SUE LANNIN: Around the world interest rates are on the rise. Overnight the US Federal Reserve
raised rates on emergency loans by 25 basis points or 0.25 of one percentage point.

It's the first step towards unwinding the massive stimulus pumped into the US economy.

SHANE MCLEOD: Sue Lannin reporting and the NAB's shares are down more than 2.5 per cent today.