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Aug 15 (Reuters) - National Australia Bank (NAB) on Tuesday reported an increase in its third-quarter cash profit, helped by rising interest rates, and announced a A$1.5 billion ($972.90 million) share buyback.

The buyback, which the bank aims to commence in late-August, will result in the reduction of the common equity tier 1 ratio — a measure of banks' financial strength — by 35 basis points at level 2.

Australian banks have benefited in the high interest rate environment as they charged more from borrowers, but now face headwinds from rising bad debt and increasing competition for mortgages.

"We know this environment is challenging for our customers, but pleasingly, most are proving resilient with only a modest deterioration in asset quality in 3Q23," said Chief Executive Ross McEwan.

The country's second-biggest lender posted cash earnings of A$1.90 billion for the quarter ended June 30, compared with A$1.80 billion a year earlier. Analysts had expected A$1.83 billion, according to Visible Alpha consensus.

NAB's net interest margin, a key measure of profitability, in the April-June quarter was lower at 1.72% than the first-half's quarterly average.