(Reuters) - National Australia Bank ( NAUBF ) reported a 3% drop in its cash earnings for the first quarter on Wednesday, impacted by higher credit impairment charges and income tax expense, which offset growth in underlying profit.

The country's top business lender posted cash earnings of A$1.74 billion ($1.11 billion) for the quarter ended December 31, lower than A$1.80 billion reported a year ago.

That compares with a Visible Alpha consensus estimate of A$1.77 billion, as per Citi.

Its net interest margin - the difference between the interest it earns from borrowers and what it pays to depositors - declined modestly during the quarter due to higher funding costs and competition.

"The economic outlook is improving but cost of living and interest rate challenges persisted during 1Q25," Chief Executive Officer Andrew Irvine said.

The lender said its common equity tier 1 ratio - a closely watched measure of its spare cash - fell to 11.6% as of December-end, compared with 12.4% at the end of September.

Credit impairment charges rose to A$267 million during the quarter, a 38% jump from last year.

($1 = 1.5743 Australian dollars)