National Australia Bank remains well off the pace, compared with its three big bank peers, in producing tolerable returns on shareholder funds or approaching international benchmarks for bank profitability.NAB yesterday reported a net profit of A$2.43 billion for the March 2011 half - up 14 per cent over six months and up 16 per cent over 12 months.Using the measure of "cash" earnings of $2.7 billion for the half, NAB's profit increased 12 per cent over six months and 22 per cent over 12 months.Re-pricing of home loans in Australia late last year and margin improvement on loans more generally helped provide the lift in profit over the last six months.The cut in expenses over the half also aligns, roughly, with the profit increase, though most of this cut was in the miscellaneous category of "other expenses".NAB's return on equity of 12.3 per cent for the half year lags ANZ (15.4 per cent), CBA (19 per cent) and Westpac (20.6 per cent), with the latter's inflated by a one-off tax gain.The bank's return on assets of 0.7 per cent was static in the latest half and below the ROA of around one per cent or better for its peers.Asset quality worsened over the quarter, as shown in the table. Peer group trends on this point are mixed.Mark Joiner, the bank's finance director, yesterday noted the "stickiness of the bad debts, although they are still falling."Leaving aside improvements in the bad debt experience of the wholesale bank (including the "specialised" asset group cleaning up the collateralised debt mess) and foreign exchange effects, bad debts are in fact worse.Joiner said: "The bad debt expense is actually up by $80 million, and that reflects a number of factors, not least the two-speed economy in Australia that you hear so much about, but also the natural disasters we've had here and in New Zealand, and, of course, the fragility of the economic conditions in markets outside of Australia."One reason for the rise was the need to take collections' staff away from their normal work in December to help sort out the many customer complaints over incorrect balances. Thus, the rise in credit card bad debts this half may reverse in the current half.He said NAB's bad debt expense, equal to 43 basis points of gross loans, was "our long run average for a full cycle".