National Australia Bank has signalled it is confident households and businesses can weather the slowing economy and the sharp rise in interest rates, unveiling a $1.5 billion share buyback as its third-quarter profits beat market expectations.

NAB chief executive Ross McEwan said there had been a “modest deterioration” in the quality of the bank’s loans, but he was the latest major bank boss to reassure investors that consumers remained resilient after CBA and Bendigo also reported modest indicators of financial stress.

Releasing a trading update on Tuesday, the country’s second-largest bank announced it planned to start the buyback later this month, as it reported a 5.8 per cent increase in its third-quarter profit to $1.9 billion. The growth in profit came against a backdrop of higher interest rates but also slowing growth, inflationary pressures and elevated competition.

“We know this environment is challenging for our customers, but pleasingly, most are proving resilient with only a modest deterioration in asset quality in the third quarter,” McEwan said.

NAB’s unaudited cash earnings for the June quarter were 5 per cent lower than the average across the December and March quarters, but grew 5.8 per cent relative to the same period last year to $1.9 billion, exceeding analyst expectations.

Loading

Shares in NAB closed 1.3 per cent higher on Tuesday to $28.7 a share.

McEwan said small-to-medium enterprise business lending increased 4 per cent over the quarter, but that home lending grew below the broader sector’s growth of 1 per cent. Gross loans were broadly flat.

NAB’s net interest margin – which compares funding costs with what it charges for loans, and which McEwan said had peaked in the bank’s May trading update – fell 5 basis points to 1.72 per cent.