By Robb M. Stewart 

MELBOURNE, Australia-- National Australia Bank Ltd. moved to shore up its capital base, unveiling a 5.5 billion Australian dollar (US$4.4 billion) rights issue that will help the lender make a clean break from its troubled U.K. business.

The plan is Chief Executive Andrew Thorburn's latest effort to narrow a return-on-equity gap with NAB's main rivals by withdrawing from international operations to focus on core franchises in Australia and New Zealand.

Mr. Thorburn, who took over the reins in August, said Thursday that his priority was to exit from the U.K., where NAB owns Clydesdale Bank and Yorkshire Bank. While remaining open to a trade sale, Mr. Thorburn said his aim for now was to spin off as much as 80% of the U.K. operation to NAB shareholders and sell the rest through an initial public offering by year-end.

Capital raised from the 2-for-25 accelerated rights issue would facilitate the exit, by providing a buffer against potential losses related to legacy misconduct allegations for wrongly selling certain financial products--an issue that has dragged on the U.K. business's recovery from the country's recession.

The U.K. prudential regulator has called on NAB to inject GBP1.7 billion (US$2.6 billion) in capital before listing the business to cover possible losses, and the remainder will shore up NAB's own capital reserves, the bank said.

The rights issue will help NAB lift its capital-reserve ratio above that of its peers, at a time when regulators at home and globally are calling for big banks to raise their buffers against the risk of economic crises.

The bank said it expects to release a further A$500 million in capital by reducing the exposure of its wealth-management division to possible life-insurance claims through a reinsurance arrangement with an unnamed global provider.

Australia's major banks emerged from the global financial crisis relatively unscathed, shielded by years of uninterrupted growth in Australia. More recently, they have benefited from record-low interest rates that have encouraged borrowing and reduced default rates.

Still, NAB has lagged behind the earnings growth and share-price performance of its peers, partly due to its less profitable international businesses. And like all of Australia's big lenders, NAB is facing pressure on margins due to intensifying competition for loans in the low-interest-rate environment, and from increasing regulatory scrutiny over speculative-mortgage lending.

Separately, NAB reported a 20% jump in first-half net profit to A$3.44 billion in the six months through March, from A$2.86 billion a year earlier. In line with rivals, NAB said its net-interest margin contracted slightly in the half year.

Still, revenue was up and expenses were broadly flat after stripping out a fine paid in the U.K. for how the British business dealt with customer complaints over the wrongful sale of payment-protection insurance.

Also, the company said Chairman Michael Chaney planned to retire in December following a decade in the role. He will be succeeded by Ken Henry, a former treasury secretary and ex-central-banker who joined NAB's board about four years ago.

Since taking over from CEO Cameron Clyne, Mr. Thorburn has put in place a new leadership team, sold GBP1.2 billion in higher-risk U.K. commercial-real-estate loans, and pulled out of the U.S. with the staged sale of regional lender Great Western Bancorp Inc.

Last week, NAB said it could raise as much as US$495 million by selling another bundle of shares in Great Western, which it floated on the New York Stock Exchange last year.

Write to Robb M. Stewart at robb.stewart@wsj.com

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