The strife in New Zealand's dairy sector ratcheted the most severe loan arrears of 90 days or more past due at National Australia Bank higher over the December 2015 quarter.NAB said the ratio of the most past due loans kicked up to 0.68 per cent at December 2015, up from 0.63 per cent at September 2015.The bank said the increase "reflects the inclusion of a small number of New Zealand dairy exposures totalling NZ$420 million as impaired assets but with no loss currently expected."Late last month Fitch Ratings highlighted adverse trading conditions in the dairy sector in NZ as one rationale on a rethink on the outlook for New Zealand's sovereign rating.Fitch yesterday said it expected "some asset-quality deterioration in 2016 within the rural exposures [in New Zealand] as a result of prolonged low dairy prices."It said this is "likely to lead to slowing growth in operating profit, although most profitability metrics should remain stronger than international peers."Commonwealth Bank's NZ subsidiary ASB last week cited increased provisioning for losses on dairy loans as one cause of an 11 per cent rise in loan impairment charges.Higher arrears, however, did not correlate with a rise in the charge for bad and doubtful debts at NAB this quarter. NAB cut this expense by more than half to A$84 million. NAB said "the key driver was lower charges in Australian Banking due to improved asset quality and the non-repeat of the Australian mining and agri overlay top-up in the September 2015 half year."The bank said its cash earnings for "continuing operations", which excludes Clydesdale Bank, were approximately $1.7 billion for the December 2015 quarter, around three per cent "above the quarterly average of the September 2015 half rear result and approximately eight per cent up on the prior corresponding period."