National Bank of Canada reported a rise in fourth-quarter profit on Friday, as a strong performance at its capital markets unit helped offset the hit from bigger provisions.

An uncertain economic outlook has prompted lenders to build rainy-day funds to brace for potential loan defaults.

The Montreal-based bank's provisions for credit losses rose to C$115 million from C$87 million a year earlier.

Funding costs have also increased for banks as they pay higher interest rates on deposits to stop customers from moving to higher-yield products such as money-market funds.

NBC's adjusted net interest income, the difference between what banks earn on loans and pay out on deposits, slumped about 35.1% to C$825 million.

Its financial markets segment, however, posted an adjusted net income of C$289 million, up 42%, driven by strength in capital markets and global markets businesses.

The bank's adjusted net income rose to C$867 million ($641.13 million), or C$2.44 per share, for the three months ended Oct. 31, from C$738 million, or C$2.08 per share, a year earlier.

($1 = 1.3523 Canadian dollars)

(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Shilpi Majumdar)