Melbourne-based National Australia Bank (ASX:NAB) today announced it had posted $1.1 billion cash earnings in the three months to June, a 22 per cent increase on its profit from the same period last year.

The bank said the result was largely consistent with average quarterly earnings over the first half of the 2010 financial year, but is slightly below the $1.2 billion profit the market had been expecting.

According to chief executive Cameron Clyne, customers had responded to NAB's move to decrease penalty and other fees, as well as its lower interest rate pricing.

''Personal banking began to reap the benefit of fee reductions and other initiatives with strong growth in mortgages and new transaction account openings."

''Having demonstrated strong support for customers during challenging times, and with additional bankers and specialists, business banking is well placed to benefit from a recovery in business credit growth,'' Mr Clyne said.

While NAB credited part of the improvement in revenue to growth in personal and business lending, it said revenue was still short of the first-half quarterly average due to more credit spreads.

The average cost of wholesale funding continued to hike during the quarter, but NAB kept its net interest margin stable.

The bank said it had achieved $24 billion of its $20 billion to $25 billion target of wholesale funding for the year, and that it had maintained a conservative liquidity position with a Tier 1 capital ratio of 8.79 per cent at June 30, a little lower than the 9.09 per cent at March 31.

''The combination of strong capital and sound funding positions gives us the flexibility and capacity to grow in line with our strategic agenda,'' Mr Clyne said