UPDATE: NAB Watching Closely To See Which RBS UK Assets Are Sold

National Australia Bank Ltd. (NAB.AU) Chief Executive Cameron Clyne said Monday the bank is keeping a close eye on the potential break up of Royal Bank of Scotland PLC (RBS.LN) assets in the U.K.

RBS has agreed to spin off its insurance arm and sell branches in England and Wales to satisfy European Union concerns over a capital injection the bank received from the U.K. government.

"We're watching closely. We aren't sure what assets will be divested," he said in response to questions at a business lunch.

NAB's U.K. banking business, which includes the Clydesdale and Yorkshire banks, capitalized on the relative weakness of its U.K. peers in the 2009 financial year to write more loans during the period.

Clyne said NAB's focus remains on the Australian market and the bank has capital available to take advantage of "any sensible acquisitions" this year.

"If we are going to go offshore, we need to say what is our point of difference," he said.

"We are putting that filter over everything we are considering."

Clyne wouldn't say if NAB is interested in buying Australian wealth manager AMP Ltd. (AMP.AU), which recently launched a joint bid for AXA Asia Pacific Holdings Ltd. (APH.AU) with that company's French parent AXA SA (AXA).

Analysts have said the bid could be thwarted by one of Australia's big banks trying to take over AMP.

Delivering a speech at the lunch hosted by the Australian Israel Chamber of Commerce, Clyne said it is too early to tell how rising interest rates and the changing global economic outlook will impact borrower sentiment.

"It is essential to look through the Christmas trading period to see how people respond," Clyne said.

"We are cautiously optimistic," he said.

He called for a policy debate to diminish Australia's reliance on offshore funding, a reliance he said leaves the country's banks vulnerable to global shocks.

"One of the great weak spots about the Australian economy is its reliance on offshore funding," he said.

-By Rebecca Thurlow, Dow Jones Newswires; 61-2-8272-4679; rebecca.thurlow@dowjones.com

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