National Australia Bank says more income from lending and investments, stronger markets, and fewer bad debts helped it post a rise in annual earnings.

After-tax profit for the 2015 financial year came in at $6.3 billion, up by nearly 20 per cent from a year ago.

Key points: NAB announces $6.3b profit after tax, up 20pc from last year

NAB announces $6.3b profit after tax, up 20pc from last year Cash earnings increased by $5.8b

Cash earnings increased by $5.8b Bank plans to sell 80pc of life insurance business and loss-making Clydesdale and Yorkshire Bank

Bank plans to sell 80pc of life insurance business and loss-making Clydesdale and Yorkshire Bank Comes week after mortgage rate rise

The bank's preferred measure, cash earnings, increased nearly 16 per cent to $5.8 billion, worse than the $6.3 billion predicted by analysts.

The figure was lower than expected because of provisions made to cover compensation it had to pay for mis-selling payment protection insurance and interest rate products in the UK.

But Group net interest margin, the difference between the interest rates the bank pays to borrow money compared to the lending rates it charges, fell four basis points, mainly because of the competitive business loans market.

As part of an effort to boost its capital reserves, NAB will sell 80 per cent of its life insurance business to Japanese insurer Nippon Life Insurance Company for $2.4 billion.

It will also hive off its loss-making Clydesdale and Yorkshire Bank operations in the United Kingdom in February next year and float the demerged business.

Australia's banking regulator, the Australian Prudential Regulation Authority, has told banks to raise the amount of capital they put aside to cover potential losses on their mortgage books.

NAB chief executive Andrew Thorburn told analysts at a briefing on the results this morning it had been a difficult year.

"The backdrop for 2015 has been a challenging one," Mr Thorburn said.

"Challenging because we set a demanding schedule which we've executed on. And because the environment has been full of change.

"Relatively low economic growth, extensive regulatory changes, fierce competition, traditional risks and some new ones, and a range of reputational challenges."

Bank sold new shares to increase capital buffer

NAB raised $5.5 billion in May by selling new shares to investors to increase its capital buffer.

It said its capital reserves, the Common Equity Tier 1 ratio, now stood at 10.2 per cent at the end of September, up 137 basis points from March 2015 because of the capital raising and the planned UK demerger.

Last week it raised mortgage interest rates by 17 basis points to 5.6 per cent for owner-occupiers to boost its capital buffer.

NAB said expenses fell by around 1 per cent.

The bank took a charge of $832 million on bad and doubtful debts, down approximately 5 per cent from a year ago.

The charge includes provisions for loans to the local resources and agriculture industries and an rise in provisions for loans to the New Zealand industry.

Investors will get a final dividend payout of 99 cents a share, fully franked, unchanged from a year ago.

NAB shares fell nearly 1 per cent or $0.33 in early trade on the local share market to $32.08.

The other big banks also lost ground.