National Australia Bank chief executive Cameron Clyne concedes it will be difficult to hold back part of any future interest rate cuts from borrowers, because the war for deposits that was pushing up costs has eased.
While NAB's troubled British arm remains a drag on the business, the bank underlined the strong position of its Australian operations on Thursday, reporting $2.92 billion in cash earnings in the latest half.
The result, a lift of 3.1 per cent compared with a year ago, was supported by a strong performance in its personal banking arm and NAB's move to bring its mortgage rates closer to those of its rivals.
However, Mr Clyne said NAB would find it "hard" to undertake further "repricing" of its loan book from here on.
Banks blamed their unpopular decisions to only pass on some of last year's cuts in official interest rates on fierce competition for deposits, which pushed up costs.
But Mr Clyne said this competition was easing and this was one reason the bank moved quickly to pass on this week's 0.25 percentage point cut in the cash rate to borrowers.
"There is some moderation in deposit competition but also a moderation in the wholesale funding market, which obviously allowed us to pass that on," he said. "I think it was mainly driven by the funding situation rather than anything else."
Further bank decisions on interest rates would depend on market conditions, he said, but added: "Obviously if markets remain benign, both in deposit competition and wholesale, yes, you can probably look to more interest rate cuts."
Mr Clyne has presided over the bank's strategy of having the lowest standard variable mortgage rate among the majors.
But Macquarie figures show it has kept 32 of the 150 basis points in official rate cuts since May last year for itself, the highest share of the big banks.
NAB's result caps off a strong round of big bank profits, which are on track to exceed $26 billion this year.
Despite slowing demand for credit, the big four's profits swelled to $13.4 billion in the latest half, driven by cost cutting and falling charges for bad loans.
NAB's result highlighted the mixed environment, with revenue falling 1.6 per cent over the year and the bottom line benefiting from lower bad debt charges.
Its troubled British businesses continued to drag on the group, but showed signs of improvement. While the UK division holding the better assets made a profit, its portfolio of commercial real estate assets posted a $226 million loss.
The managing director of White Funds Management, Angus Gluskie, said the UK division remained a drag on the bank but a fall in impairment charges suggested things were improving.
"It's an indication that things are improving there, but at the same time they are still incurring a net loss," Mr Gluskie said.
Its flagship business bank posted a 1.9 per cent fall in profits to $1.24 billion, with corporate demand for credit remaining weak.
Retail lending had a much stronger half, with profits surging 19.2 per cent compared with a year ago and net interest margins widening significantly. It also expanded its share in the lucrative home loan market from 14.6 per cent to 15.2 per cent, helped by its aggressive pricing strategy.
NAB raised the interim dividend to 93¢, a 3¢ increase. Its shares fell 2 per cent, or 69¢, to $32.68.