There wasn't much talk from National Australia Bank's chief executive, Cameron Clyne, about the bank's price leadership in the mortgage market yesterday. While the bank still holds the edge over its Big Four rivals, it has allowed its pricing advantage to be eroded over the past year, and its standard variable mortgage rate is now only two basis points cheaper than a couple of its rivals.The bank has been keen to restore its interest margin in the face of funding cost pressures. Its price war has proved to be unsustainable and it would appear that retail customers are bearing the brunt of the re-pricing strategy.In the September half, re-pricing of loans increased the bank's interest margin by 11 basis points. This matched the combined impact of higher deposit costs (equivalent to nine basis points of interest margin) and higher wholesale funding and liquidity costs (equivalent to two basis points of margin). The fall in the net interest margin in the second halfcto 2.06 per cent can be attributed to other factors, such as the lending mix, markets and treasury.However, in the Personal Banking division, loan re-pricing contributed 24 basis points to the interest margin in the second half (19 basis points over the full year). This increase more than offset the increase in the cost of retail deposits, which was equivalent to 15 basis points of interest margin. Personal Banking's net interest margin rose two basis points.The increase in the lending margin in Personal Banking was double the increase in any other division in the September half.On the funding side, customer deposits made up 66 per cent of asset funding, while term funding with maturities longer than 12 months made up 20 per cent.The bank said its cost of funding a variable-rate mortgage was about 160 basis points more than the Reserve Bank's cash rate. Recovery via re-pricing had not made up all the difference.