Almost six years after the global financial crisis, National Australia Bank is still waiting for businesses to start spending and borrowing money again.
NAB unveiled a record $3.15 billion cash profit on Thursday, but the 8.5 per cent lift in earnings was driven by a reduction in bad debts, rather than lending growth.
Chief executive Cameron Clyne said while the conditions were right for an increase in business activity, including improvements in the housing market and business sentiment, the bank had experienced many false dawns.
"There has been a call for the unleashing of business activity on many occasions but it hasn't happened," he said.
"At some point it will have to come because businesses have been deferring investment and their balance sheets are in good shape...but we've been caught out before."
But Mr Clyne said NAB was well positioned to benefit from an increase in business activity, whenever that occurs.
"That's what the whole economy is waiting for and as Australia's biggest business bank that's something we are keen on as well," he said.
He said the Australian economy was continuing to perform strongly, despite ongoing concerns about the slowdown in mining investment.
"The economy is actually going through the transition and handling it relatively well ... fundamentally the economy is quite strong."
NAB's first half result was driven by a sharp reduction loan losses in its Australian and UK operations, with bad debt charges down 52 per cent compared to a year ago.
In response, the bank lifted its fully-franked interim dividend six cents to 99 cents a share, which helped drive its share price higher.
After an early slide, NAB shares recovered and were 28 cents higher at $34.12 at 1531 AEST.
But there was disappointment with the performance of the bank's core Australian operations, where earnings rose just one per cent to $2.47 billion.
By comparison, ANZ lifted profit from its Australian operations five per cent during the half, while earnings from Westpac's Australian financial services division rose 12 per cent.
"All the profit growth was due to significantly lower bad debt, which is a good thing, but the underlying profit in the core business was very, very sluggishly," Morningstar analyst David Ellis said.
Mr Ellis said a slide in the bank's net interest margin during the half was particularly worrying, which fell nine basis points to 1.94 per cent during the half, putting it well below the rest of the big four.
He was also concerned about an 11.6 per cent increase in costs during the half, leaving it with significantly higher costs than its major rivals.
"There's a lot of work that needs to be done for NAB to move closer to peer group levels.
However, Mr Ellis said the bank's profitability would rise as business credit growth lifted and the bank had been at a disadvantage compared to its rivals due to its relatively smaller exposure to the booming housing market.
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