National Australia Bank's New Zealand cash earnings dropped 3 per cent in its first half as the lender took impairments against its rural loan book because of the dairy industry downturn while its net interest margin shrank.

NAB's cash earnings from banking in New Zealand, where it owns Bank of New Zealand, fell to $404 million in the six months ended March 31, from $407 million a year earlier, according to the lender's announcement to the ASX. Its net interest margin fell to 2.31 per cent from 2.42 per cent in September, it said.

"Our NZ banking business produced a solid result this period despite challenges facing the dairy industry," chief executive Andrew Thorburn said in a statement. "While we remain confident in the robustness of the underlying New Zealand economy, against a backdrop of sustained low milk prices we have taken a proactive approach to provisioning for future dairy impairments."

Revenue rose 2 per cent in New Zealand in the first half, with higher lending volumes partly offset by a lower net interest margin, it said. National Australia's group asset quality measure included A$522 million of New Zealand dairy impaired assets, it said.


National Australia's total cash earnings rose to A$3.3 billion from A$3.1 billion a year earlier. Net interest income climbed to A$6.6 billion from A$6.2 billion.