National Australia Bank (NAB) continues to generate criticism because of its decision not to pass in full the 25 basis points key lending rate cut made by the Reserve Bank of Australia (RBA) earlier this week.

After Treasurer Wayne Swan called NAB greedy, Macquarie Equities Investment analyst Michael Wiblin told clients that NAB apparently is acting more in the interest of shareholders than depositors.

By keeping part of the cash rate cut, NAB is expected to earn a windfall.

Morgan Stanley analyst Richard Wiles estimated an extra $60 million profit per year for NAB, The Daily Telegraph placed it at $57 million and Citigroup analyst Craig Williams forecast an $80 million windfall for the bank.

However, the analysts agree that the NAB's decision would likely result to a depositor backlash.

"NAB's decision is likely to lead to some bad publicity and may cause its... loan growth to ease.... We have no doubt that the other major banks will use the opportunity to advertise that NAB had never truly 'broken up' with the other banks but merely took some time out of the relationship. This will likely see the bank's mortgage credit growth track at a pace more in line with peers," The Telegraph quoted Mr Wiles.

In contrast to the NAB action, Australia New Zealand Bank, the Bank of Melbourne and Commonwealth Bank passed on the full RBA cash rate cut to borrowers.

On Thursday, Australian Bankers' Association (ABA) Chief Executive Steven Munchenberg defended the healthy profits registered over the week by local banks.

"Healthy profits highlight the strength and stability of our banking system. A solid and reliable banking system underpins our economy at a time when countries overseas are still dealing with high unemployment, poor business conditions, negative economic outlooks and depressed consumer sentiment. This is the result of the continuing impacts of the global financial crisis," Mr Munchenberg said in a statement.

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