MELBOURNE, Australia—National Australia Bank Ltd. confirmed it is discussing a possible life-insurance tie-up with Nippon Life Insurance Co. as it seeks to lift returns to close the gap with Australia's other top banks.

The two companies have entered a nonbinding memorandum of understanding but discussions are ongoing and nothing has yet been decided, NAB said Thursday. A potential deal is uncertain and would be subject to regulatory approvals, it added.

NAB Chief Executive Andrew Thorburn said the bank had been exploring a potential strategic partnership with Nippon Life and a long-term deal for the creation of life-insurance products, as part of a broader look at options to improve returns in NAB's wealth division, which houses its insurance business.

The major Japanese life-insurer aims to strike a deal this month to buy NAB's insurance operation, spending between 200 billion and 300 billion yen (US$2.5 billion), Kyodo news agency reported late Wednesday, citing unnamed sources. A spokeswoman for NAB declined to provide further comment beyond its Thursday statement.

Since taking the helm at NAB just over a year ago, Mr. Thorburn has sped up the bank's efforts to tighten its focus on its core Australia and New Zealand businesses and shed underperforming assets. That has come even as major lenders in Australia have been forced to raise billions of dollars to boost capital buffers to meet regulatory demands.

After years lagging behind the earnings growth and share-price performance of its peers, NAB in May moved to raise 5.5 billion Australian dollars (US$3.98 billion) through a rights issue to ease its exit from its U.K. banking operations by the end of the year and to shore up its capital reserves. That came after it last year sold a large portfolio of higher-risk commercial real-estate loans in the U.K. In July, NAB sold its remaining stake in regional U.S. lender Great Western Bancorp Inc., which it floated on the New York Stock Exchange last year.

NAB said Thursday it would provide an update on the talks with Nippon Life if there were any material developments.

A sale of its insurance business would come amid consolidation moves by insurers in the Asia-Pacific region. Nippon Life last month agreed to buy smaller Mitsui Life Insurance Co. Sumitomo Life Insurance Co. a month earlier agreed to buy U.S. life insurer Symetra Financial Corp. for US$3.73 billion, and Dai-ichi Life Insurance Co. closed a deal earlier this year to buy Protective Life Corp. in the U.S. for US$5.6 billion.

On Thursday, NAB rival Australia & New Zealand Banking Group Ltd. said it was selling its New Zealand medical-insurance business to health insurer nib Holdings Ltd. in a deal worth about A$22.6 million. The same day, Insurance Australia Group Ltd. abandoned plans to invest further in China but said it would seek growth opportunities in other Asian markets and in its core businesses in Australia and New Zealand.

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

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(END) Dow Jones Newswires

October 14, 2015 21:45 ET (01:45 GMT)

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