National Australia Bank paid 70 basis points more for term funding during the December quarter than its average cost of term funding.NAB's chief financial officer, Mark Joiner, said yesterday that the bank issued A$7 billion of wholesale term funding during the quarter, of which $4 billion was in covered bonds. Joiner said the average cost of issuance during the quarter was 195 basis points over the 90-day bank bill swap rate. The average cost of the term funding on the bank's books is 124 basis points over swap.Joiner said deposits had grown faster than lending during the quarter, giving the bank some funding flexibility. However, strong competition for deposits would continue as banks work to improve their stable funding ratios. NAB's chief executive, Cameron Clyne, said the bank's funding strategy would be dictated by credit demand. "If it remains weak we have lots of options. We think it will be weak for the next half," he said.Clyne and Joiner made their comments on funding during a briefing on the bank's performance in the December quarter. The bank reported unaudited cash earnings of A$1.4 billion for the quarter - up from $1.3 billion on the previous corresponding period.Revenue in the Australian retail and business banking divisions was flat, while UK revenue was down. Revenue growth came from wholesale banking and, to a lesser extent, MLC and NAB Wealth.Increased funding costs were largely responsible for a fall in the net interest margin from 2.28 per cent to 2.19 per cent.Revenue grew faster than expenses, giving the bank 3.8 per cent "positive jaws".One worrying trend was an increase in the charge for bad and doubtful debts. The bad debt charge for the quarter was $545 million - $128 million higher than the quarterly average for the September half of the 2010/11 financial year.Asked whether the increase was a blip or a trend, Joiner said loans 90 days past due were going up. The rate of increase in delinquent loans is a leading indicator of bad debts.The chief source of the increase in bad debts is UK banking.Clyne said the bank would review its under-performing United Kingdom banking operations and look for a way to achieve an acceptable return on equity for the business.Clyne said the group's support for the UK business had not changed but it needed to find "the optimal structure". The review was prompted by a view that the slowdown in the UK economy would go on for longer than expected. "Retaining the existing business mix and structure will not be an outcome," he said.NAB also announced yesterday that it would maintain the lowest standard variable mortgage rate in its peer group throughout 2012.