Australia\’s biggest lender, National Australia Bank, said its first-half net profit fell slightly from a year earlier as bad debts increased amid the global downturn.

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Net profit for the six months ended March 31 fell to $2.66 billion from $2.69 billion a year ago, the bank said.

“We continued to grow revenue while carefully managing costs, but this was offset by increased bad and doubtful debts and higher funding costs,” chief executive Cameron Clyne said in a statement.

The bank\’s bad debts charge for the half jumped to $1.8 billion from $700 million a year ago due to the slowing global economy, the bank said, predicting further problems in the year ahead.

“It\’s difficult to see where it will peak but we are looking at a difficult bad and doubtful debt outcome for (fiscal) 2009 and 2010,” Clyne told journalists.

Revenues were stronger as the bank increased its market share, growing 11.5 percent to $8.5 billion from $7.6 billion a year ago, the bank said.

The bank\’s profit was at the lower end of expectations. Cash profit fell 9.4 percent on year to $2.0 billion from $2.24 billion a year earlier.

“The fall in cash earnings reflects the tough economic conditions that continued to deteriorate as the half-year progressed,” Clyne said.

The bank cut its interim dividend to 73 cents from 97 cents a year earlier to preserve capital to provide a buffer against deteriorating economic conditions in its key markets.

NAB predicted a tough year ahead. “We\’re not providing guidance, but I think that you\’d have to say that the next six to 12 months will be difficult,” Clyne said.