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Christine St Anne is Morningstar's online editor.

National Australia Bank (NAB) on Tuesday announced a third-quarter profit of $1.4 billion, which was 6 per cent below Morningstar's forecast profit of $1.5 billion.

Revenue declined by 1 per cent, with the bank attributing the decline to funding costs in the UK, lower markets income, and a decline in specialised group assets revenue.

The restructure of the UK business announced in April also impacted the bank's overall results.

Although the bank's result fell short of Morningstar's outlook, Morningstar head of Australian banking research David Ellis said he does not expect "material cuts" to Morningstar's expected dividend yield of around 7 per cent.

Nevertheless, Ellis said the lower-than-expected earnings will result in a toning down of Morningstar's full-year outlook.

Ellis said the bank's loan and deposit business in Australia remained solid. The bank reported an increase in customer numbers, revenues and earnings for its personal banking division during the quarter.

Business banking was impacted by higher funding costs and an increase in bad debt charges.

However, Ellis said personal banking and business banking in Australia continues to build momentum, but the underperforming UK banking operations weighed on the group result.

NAB Wealth also improved in the quarter due to a boost in insurance sales, while claims were stable.

The bank also announced improvements in its bad debts and expenses. Bad debts of $524 million for the quarter were in line with Morningstar's expectations and Ellis said there was no need to adjust his full-year bad debt forecast of $2.2 billion.

The bank said expenses were lower, reflecting disciplined expense management. Ellis said the decline in expenses will support the likelihood of an improved full-year 2012 cost-to-income ratio.

Ellis also said the asset quality of the bank is stable and that core Tier 1 capital ratios remain unchanged.

The bank did not provide any details on its net interest margin. Ellis said that limited detail in the trading update made it difficult to "fully gauge underlying performance".

"Despite the volatile quarterly performance, we retain our positive medium-term view on the bank," he said.