(Reuters) -Commonwealth Bank of Australia ( CBAUF ) shares slid nearly 5% on Tuesday after the lender said increased competition and lower interest rates hurt key margins, even as it reported a slight uptick in first-quarter cash profit.

Australia's largest bank by market capitalisation reported cash profit of A$2.6 billion ($1.69 billion) for July-September. That was 1% higher than the average of the previous two quarters and 2% higher than the same period a year earlier.

Operating costs rose 4% because of wage growth and higher technology costs, CBA said in a quarterly trading update.

The bank said July-September net interest margin was weighed down by strong growth in lower-yielding liquid assets, especially a A$10 billion increase in institutional deposits. It did not disclose the NIM figure.

"Underlying margin was slightly lower due to deposit switching, competition and the lower cash rate environment," CBA said.

CBA accounts for roughly a quarter of Australia's A$2.2 trillion in mortgages. Following the quarterly trading update, its share price slipped as much as 5% to a four-week low of A$166.31.

"Not stating the net interest margin leaves room for thoughts on the extent of the reduction," said Ord Minnett private wealth advisor John Milroy.

"The stock continues to be expensive on any metric, so I would say there's a bit of switching to the relatively cheaper banks as well."

ANZ Group and Westpac shares were up about 1.3% while National Australia Bank was off 0.8%. The benchmark S&P/ASX200 index was 0.24% higher.

CBA is one of the most expensive banks in the world, with its price-to-earnings and price-to-book metrics more than double the global average.

"We are closely watching the increased competitive intensity and implications across the financial system, and we will continue to adjust our settings as appropriate," CEO Matt Comyn said.

The trading update showed CBA's home lending expanded A$9.3 billion in the quarter, while household deposits surged A$17.8 billion.

The bank set aside A$220 million for potential loan loss, equal to 9 basis points of its loan book. Overdue home loans stood at 0.66% of its portfolio and problem business loans amounted to 0.94% of total corporate lending.

($1 = 1.5389 Australian dollars)