(Reuters) -National Australia Bank ( NAUBF ) warned its full-year expenses would be up to A$130 million ($84.7 million) higher after it discovered it had underpaid some of its staff, as it reported a slight increase in third-quarter earnings.

NAB, Australia's top business lender, said a review of its payroll systems and remediation was ongoing and the final costs that could be incurred were uncertain.

The A$130 million set aside would increase the bank's full-year operating expenses by about 4.5%, NAB said.

NAB said the issues were discovered during a payroll review that began in 2019 and it had started a broader review into examining payroll-related benefits given to staff under current and certain historical agreements.

NAB did not say how many staff were affected or the value of the discrepancies discovered.

"Paying our colleagues correctly is an absolute priority," said Sarah White, NAB's group executive people and culture. NAB Chief Executive Andrew Irvine said the issue was "disappointing and must be fixed."

NAB said it was engaging with unions and the Fair Work Ombudsman while the issue was investigated.

The bank reported A$1.77 billion ($1.15 billion) cash earnings for the three months ended June 30, compared with A$1.75 billion a year ago.

The Reserve Bank of Australia has cut interest rates by 75 basis points so far this year and signalled further easing ahead. The lower interest rate environment has aided higher lending volumes and improved asset quality.

NAB said business lending grew 4% and Australian home lending grew 2% during the quarter compared with the quarterly average of the first half.

Its net interest margin - a closely watched measure of bank performance which compares interest payments received on loans minus interest paid out to deposit holders - increased by 8 basis points.

NAB shares rose by 2% to A$39.97 as the ASX200 was flat. The bank's growing net interest margins and lower short-term funding costs was positive for NAB.

Excluding Markets and Treasury, NIM rose 4 basis points, mainly due to higher earnings on replicating portfolios and lower short-term funding costs.

NAB said the ratio of default but not impaired assets to gross loans rose 2 basis points, as Australian mortgage book arrears flattened and ratio trends in the Business and Private Banking segment showed early signs of stabilising.

The lender also booked a credit impairment charge of A$254 million in the quarter, mainly related to business lending in Australia and New Zealand and unsecured Australian retail portfolios.

($1 = 1.5352 Australian dollars)