UPDATE 3-National Australia Bank doubles dividend, shakes off COVID profit hit

* Doubles interim dividend of 60 cents/share, beating expectations

* NAB wants "to give capital bank" - CEO

* H1 cash profit soars nearly 95% to A$3.3 bln (Updates with CEO comments to reporters)

By Paulina Duran and Shashwat Awasthi

SYDNEY/BENGALURU, May 6 (Reuters) - National Australia Bank Ltd on Thursday doubled its dividend and promised higher capital returns to come as Australia's rapid economic recovery enabled it to move funds set aside for potential COVID-19 losses back into profit.

Australia's third-largest bank, which this time last year was raising billions in new shares, promised to "give capital back" and "reduce share count" as the country's lenders benefit from low COVID-19 case numbers and massive government stimulus.

"Six months ago ... the outlook was still pretty uncertain. Since then health and economic outcomes have improved much faster than any of us would have expected," Chief Executive Ross McEwan told reporters in a call from Melbourne.

"Here in Australia, the economy has returned to pre-pandemic levels... this is not the case everywhere in the world."

Australian banks started recovering from the pandemic earlier than global peers, helped by near-zero interest rates and government spending which lifted consumer confidence and the housing market.

NAB declared an interim dividend of 60 Australian cents per share, equivalent to 59% of its cash earnings, doubling the 30 cents per share paid last year and beating market expectations.

After raising over A$3.5 billion in capital at the onset of the pandemic last year, the Melbourne-based lender on Thursday said that in future it would target a lower capital level and a higher payout ratio of 65% to 75% of cash earnings.

"We want to give the capital back where we don't have a requirement for it ... we'll do part of that through reducing the share count because NAB has, I think, for many years, increased that share count to the detriment of shareholders."

NAB's cash profit rose about 95% to A$3.34 billion ($2.6 billion) for the half year, beating a Reuters poll estimate of A$3.05 billion.

It wrote back credit impairment of A$128 million for the half, compared with bad debt charges of A$1.16 billion last year.

The release of provisions helped the bank offset a 10.3% drop in earnings from its business and private banking unit due to low interest rates and higher expenses.

The bank also saw a spike in impaired loans during the half as deferral of home loans for customers wound down.

Peers Westpac and Australia and New Zealand Banking Group earlier this week also reported surges in first-half earnings and payouts. ($1 = 1.2908 Australian dollars) (Reporting by Paulina Duran in Sydney and Shashwat Awasthi in Bengaluru; Additional reporting by Shruti Sonal; Editing by Sam Holmes and Stephen Coates)