(Reuters) -National Australia Bank ( NAUBF ) on Thursday posted a drop of about 13% in its first-half cash profit as it grappled with high operating costs and cutthroat competition.

However, the country's no. 2 lender announced a stock buyback program worth A$1.5 billion ($979.20 million), while slightly bumping up its interim dividend.

NAB said its net interest margin - a closely watched key measure of profitability - fell to 1.72% from 1.77% a year earlier, but still beat the Visible Alpha consensus estimate of 1.69%.

A rise in borrowing costs and increased competition in the banking industry for new business are prompting banks to offer competitive rates on loans, while paying higher interest rates on deposits, affecting their net interest margins.

Its cash earnings came in at A$3.55 billion ($2.32 billion) for the six months ended March 31, in line with Visible Alpha's consensus estimate of A$3.55 billion compiled by UBS, but below last year's A$4.07 billion.

NAB raised its interim dividend by 1 cent to 84 Australian cents per share.

($1 = 1.5319 Australian dollars)

(Reporting by Sameer Manekar and Poonam Behura in Bengaluru; Editing by Anil D'Silva)