NAB Chief Executive Andrew Thorburn said the economic outlook remained "positive," but it was a "challenging" operating environment for banks. "The royal commission has raised instances where we failed to treat customers with care and respect. We are determined to put things right and are taking steps to build a better bank," he said.

Bell Potter analyst TS Lim said NAB's result was "decent", pointing to a lift in its common equity tier 1 capital, to 10.2 per cent of risk-weighted assets - an important gauge of bank strength. NAB is seen by some in the market as the big four bank at greatest risk of cutting its dividend, and its dividend payments were 94.1 per cent of profits for the year, well above its target range.

But Mr Lim said he thought the dividend would be kept flat as earnings improved, which would gradually lower NAB's dividend payout ratio.

"They are going to let earnings grow and maintain dividends," Mr Lim said.

In early trade NAB shares up 0.1 per cent at $25.29, compared with falls in other bank shares.

Housing market downturn

On the economy, Mr Thorburn said growth was being supported by strong infrastructure spending, mining exports and there was potential for a pick-up in mining investment.

"Solid population growth and low unemployment continue to limit risks from a slowing housing cycle, and while the consumer sector remains subdued, a modest increase in wages growth is expected with a tightening labour market,” he said.

NAB's business bank posted a 2.5 per cent lift in profit, to $2.9 billion, while profits in its consumer banking arm slipped by 5.8 per cent, to $1.5 billion, amid heavy discounting in the home loan market.

Mr Thorburn acknowledged the fall in house prices in Australia's two biggest cities, but said low interest rates and unemployment would limit the extent of the downturn.

"We still think housing credit is going to grow at 4 to 5 per cent," Mr Thorburn said on a call with journalists.

That compares with ANZ chief executive Shayne Elliott's prediction that housing credit would drop from a little over 5 per cent today to 2 to 3 per cent, which would be a record low.

NAB's net interest margin contracted by 3 basis points to 1.84 per cent in the second half, a smaller contraction than at ANZ and what is expected at Westpac, which will report its results on Monday.

NAB is the only bank that has not raised mortgage rates for this year in response to higher funding costs, and Mr Thorburn said this was to recognise loyal customers.

After the Reserve Bank this week signalled changes to banking business models as a result of the royal commission could lead to permanent reductions in bank profitability, Mr Thorburn said the increase in remediation costs was concentrated in the wealth division and was a "significant" provision.

He said the bank would keep remediation as a "watching item," but argued these costs would be offset by banks becoming more efficient in their use of technology over the longer term.

"There's going to be obviously more regulatory and compliance costs for probably the next year or two, but on the other hand ... you can see we're investing in new technology and processes that are going to make the bank a lot more efficient as well. I think I would back that over the medium term to have a very significant impact," he said.

A year ago, NAB announced a major plan to cut 6000 jobs over the next few years and boost its investment by $1.5 billion in response to technological change in finance. It said 1900 staff had left in the past year through the program, and most of the $775 million in restructuring costs related to this program.