Retail impairments remain challenging.

JOHANNESBURG (Reuters) - South Africa's fourth-biggest bank Nedbank reported a rise in net interest income on Thursday, but said it expected full-year profit to be lower as credit risk remains high.

Nedbank, majority-owned by insurer Old Mutual, said net interest income for the nine months to end-September rose by 1.1 percent to 12.198 billion rand, compared to 12.069 billion rand in the previous corresponding period.

The group's credit loss ratio improved to 1.47 percent from 1.57 percent, while advances rose 2.8 percent to 443.3 billion rand.

Nedbank said it expected full-year diluted headline earnings per share and diluted EPS to be between 25-35 percent lower as consumers and corporates remain under pressure due to a weak economic environment.

The bank said there had been no large corporate defaults in the third quarter, but retail impairments continued to be challenging.

The South African bank lowered its 2009 earnings outlook in August after reporting a slide in first-half profit as bad debts climbed at its corporate and retail units.

Its rivals have also taken a knock from rising defaults at their businesses as consumers struggle to pay back debts and the country grapples with its first recession since 1992.

However, South Africa's Reserve Bank said on Tuesday it expected conditions to improve thanks to lower interest rates and said rising credit impairments at local banks did not pose a major systemic threat to the financial sector.

The central bank has cut its repo lending rate by 5 percentage points to 7 percent since December last year.

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