News: NAB UPDATE 1-National Australia Bank full-year profit down 11%, cuts dividend

(Adds CEO comment, details on results)

Nov 7 (Reuters) - National Australia Bank Ltd (NAB) reported a 10.6% drop in annual cash earnings on Thursday, missing estimates, as remediation charges plague the country's third-largest lender and chip away at its capital levels.

NAB, like its peers, is also still coping with lingering remediation charges. It nearly doubled the amount of funds it set aside to repay overcharged customers to A$2.09 billion last month.

Cash earnings came in at A$5.10 billion ($3.51 billion) for the year ended Sept. 30, missing an average estimate of A$5.15 billion of analysts polled by Reuters. Last year, the lender reported earnings of A$5.70 billion.

The country's banking sector is grappling with record-low interest rates, increased competition, and higher capital requirements, adding further pressure on NAB's ability to maintain an attractive payout ratio.

The company declared a final dividend of A$0.83 per share, down from A$0.99 per share last year.

"This year has been very challenging, requiring significant actions for us to deal with past issues and make real changes aimed at earning trust with customers and the community," acting Chief Executive Officer Philip Chronican said.

In the last week, Big Four peers Westpac Banking Corp (WBC) and Australia and New Zealand Banking Group (ANZ) have both reported disappointing results, highlighting the challenges the sector faces.

Investors are hoping former Royal Bank of Scotland RBS.L boss Ross McEwan will be able to turn things around and win back customer trust when he starts in December.

NAB's net interest margin, the difference between what a bank pays to borrow money and what it charges customers for loans, was 1.78%. Its common equity tier 1 ratio was 10.38% as at Sept. 30.

($1 = 1.4531 Australian dollars)