Clydesdale Bank owner National Australia Bank (NAB) lost around £15m from the effects of the credit crunch over the last six months, it revealed yesterday, but still succeeded in posting pre-tax profit of £194m, up 17% on the year before.

NAB, which also operates Yorkshire Bank, makes around 14% of its profits from the UK, although it does not provide separate figures for the two brands.

The company saw a 17% rise in retail deposits, over the six months to March 31 compared with the same period the year before to give it a total of £17.5bn. It also took in an extra £7bn of loans to bring its total to £30.6bn although some of this was due to a transfer from its parent company.

The company made much yesterday of its absence from niche areas of the mortgage market or speculative corporate lending that are among the hardest hit from the credit crunch and economic downturn.

Chief executive Lynne Peacock said: "We have been expanding the business very conservatively."

But the company still took some fall-out from the credit crunch. Its net interest margin, a key measure of profitability, fell from 3.16% to 2.66%.

Peacock attributed around 10 basis points of this fall to taking on some lower-margin assets from parent company NAB. It has also seen a fall due to the increased amount of lower-margin secured loans as opposed to unsecured loans featuring on its books.

She said about 13 basis points of the fall was "as a result of the conditions". In short, the company has had to pay more for the funds to lend customers.

"In the last six months the market conditions have cost us around £15m," Peacock added.

The company is among one of the most conservatively positioned banks in the UK, with a tier one capital ratio of 7.5%. It also receives around 85% of its funding from deposits or longer-term funding sources rather than the short-term money markets, whose lack of liquidity has caused other institutions funding problems.

The company claims to have made little adjustment as a result of either the credit crunch which has pushed up funding costs, or an eco- nomic slowdown which seems to be hitting retailers and housebuilders in particular.

Peacock believes that the housing market varies greatly from region to region and even between areas of the same town. Scotland is faring better than many areas.

However, chief operating officer David Thorburn acknowledged that on the commercial side the company was having discussions with individual companies in particularly vulnerable areas such as housebuilding to ensure their plans stack up.

"What we are not doing is coming out of the sector," he said.

He added that on the commercial side although the appetite for leverage finance for larger deals seems to have dried up as loan costs have increased, the bank is still getting business from smaller firms doing deals. He said that exporters, benefiting from the weakening pound, were still a strong source of business.

Peacock, who said Clydesdale started making plans 18 months ago for an economic downturn, added that it was benefiting from a localised form of decision making. "Over the last two or three years we have built up a group of people who make decisions in the area. It doesn't do you any harm in circumstances like this because even in a tough market there will be opportunities."

The bank's cost:income ratio improved by 2% to sit at 58.3%, as it kept costs flat, although it is among the highest in the sector. But Peacock maintained this was a reasonable level given the company's expansion, particularly of its business banking operations, and a branch refit programme which is nearing completion.