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Australia's NAB stays on AXA deal; Q1 results hit shares

National Australia Bank, Australia's top lender, said it was working on its bid for AXA Asia-Pacific Holdings as it said falling bad debts would not return to the highs seen in the third-quarter last year.

“Work to finalize our proposal to acquire the Australian and New Zealand Business of AXA APH is ongoing,” chief executive Cameron Clyne said in a statement after the bank reported a flat first-quarter cash earnings of $991.9 million.

NAB already has the backing of AXA's independent directors for its $12 billion bid, but the competition regulator last week raised concerns over an NAB-AXA alliance, tipping the scales towards rival bidder AMP.

AMP signaled on Thursday it had room to improve its $11.6 billion bid after Axa Asia-Pacific earlier this week posted its best annual profit in six years and forecast a strong 2010.

AMP's Chief Executive Craig Dunn said as circumstances changed the company had more flexibility with the bid. Its tie-up with AXA Asia-Pacific's parent, AXA SA, for the bid has lapsed and AXA Asia-Pacific has already rejected its offer.

The high-stakes takeover tussle is expected to play out for a few more months but the regulator's decision is seen pivotal. The Australia Competition and Consumer Commission is expected to rule on both bids on March 17.

NAB said revenue and net interest margins, the difference between interest earned and interest paid, were broadly stable but funding costs had risen as competition for deposits rose and wholesale funding costs increased.

The bank also said lending growth was subdued, hurt by low retail demand and corporates tapping the equity markets to clean up their balance sheets.

Earlier, No.2 lender Commonwealth Bank and Westpac Banking Corp, said rising funding cost was a worry but both were far more confident about loan growth with the Australian economy rebounding faster than expected.

Australian banks are in a strong position after raising $120 billion in capital last year to guard against a jump in bad debts which was milder than feared.

NAB shares have fallen 15.6% since end-September, weighed down by the AXA Asia Pacific bid, compared with a 1.9% fall for the benchmark index. (Reuters)