National Australia Bank's third-quarter profit fell 3 per cent to $1.6 billion as both funding costs and charges for soured loans increased, the bank said on Monday.

A trading update said NAB's unaudited cash earnings in the most recent June quarter were 3 per cent lower than a year earlier, and also 3 per cent below the March quarter of this year.

Revenue was "broadly stable", NAB said, as loan growth helped offset a "slightly lower" net interest margin, due to higher funding costs.

Net interest margins measure the difference between banks' funding costs and what they charge for loans. They are being crunched across the industry, as banks find it hard to cut deposit rates as deeply as the cuts in lending rates.