UPDATE 2-Australia's NAB H1 profit up, lifts bad debt charge

(Adds analysts' comments)

By Sonali Paul

MELBOURNE, May 9 (Reuters) - National Australia Bank Ltd (NAB.AX: Quote, Profile, Research, Stock Buzz), the nation's top lender by assets, reported an 8 percent rise in first-half profit, helped by business lending growth and cost cuts, but warned that credit growth was slowing.

Australian banks have largely dodged the sub-prime woes afflicting global banks, but the credit crunch has raised their funding costs while their customers are feeling the pinch of higher interest rates.

NAB increased its charge for bad and doubtful debts by 86 percent to A$726 million ($685 million), joining its Australian rivals in setting aside funds against clients facing tougher times.

Chief Executive John Stewart said on Friday underlying asset quality remained sound, but analysts were more skeptical.

"It doesn't look very strong if your bad debt charge is almost A$1 billion," said Wilson HTM analyst Brett Le Mesurier, adding that the charge was a bit higher than he had expected.

NAB, the last of the country's top four banks to report its half-year results, said credit growth was slowing in New Zealand and Britain, where it owns Yorkshire Bank and Clydesdale Bank, but remained stronger in Australia.

"Further slowing in system lending is expected in all three markets, but this has been long expected, as lending growth has been particularly high in all three economies through recent years," NAB said.