UPDATE 3-Australia's CBA looks to business banking with new CEO

* CEO Norris to retire end-November

* New CEO Narev, a proven deal-maker, expected to grow business banking (Adds details, updates shares)

By Narayanan Somasundaram

MELBOURNE/SYDNEY, July 22 (Reuters) - Commonwealth Bank of Australia , the nation's top retail lender, named the head of its fast-growing business-banking division as its next chief executive, aiming to overcome the slowdown at its core business.

The renewed focus will take the battle to top business lender National Australia Bank , which is undercutting CBA and other rivals on interest rates to grab market share in mortgages.

Ian Narev, 44, who clinched CBA's last big takeover and heads the business and private banking division that earns nearly a fifth of the group's profit, will take the helm end-November when Chief Executive Ralph Norris retires.

The news of Norris's retirement caught investors by surprise and CBA shares lagged the rest of the banking sector in a broadly higher market, with the stock up 1.7 percent. NAB shares were up 2.8 percent.

Norris, 62, who has led CBA since September 2005, will step down at least a year ahead of market expectations and before his ambitious $1.2 billion technology upgrade is completed.

"The task for Narev is to improve the bank's image that has suffered since the out-of-cycle rate increase last year," said Paul Xiradis, who oversees A$12 billion, including CBA shares, as CEO of fund manager Ausbil Dexia.

"Other than that, he needs to push small and medium business lending and tap the expected growth in that market, protect its mortgage turf and look at Asia."

CBA irked customers and politicians last November when it raised rates at almost twice the level of the central bank.

"Having inherited and then energised an under-developed business banking franchise, we have been impressed thus far," Citigroup banking analyst Craig Williams said of Narev.

Business banking could provide the growth for Narev, who got the top job ahead of Ross McEwan, head of the much larger retail business.

High interest rates have hurt growth in Australian mortgage lending, which has halved to about 5 percent over the past 12 months.

Slipping growth comes as rival NAB, which offers among the lowest mortgage interest rate in the country, takes market share from rivals including CBA.

SURPRISE MOVE

Norris's retirement had been touted for some time, given his age, but most investors and analysts expected him to leave after the modernisation program, which is due for completion in 2012.

The announcement was not accompanied by any trading update, but another investor, who declined to be named, said he would keep an eye out for any earnings surprises when the bank reports results on Aug. 10.

Narev has been at the bank since 2007 and led the group's A$2.1 billion ($2.3 billion) takeover of Bankwest before being named to lead private and small-to-medium business banking, on-line brokerage and margin lending.

He heads the fastest growing business in Australia with the division's cash profit up 15 percent compared with a 13 percent growth for the bank.

Like National Australia Bank chief Cameron Clyne, Narev is not a career banker. He joined CBA from consultants McKinsey & Co, where he headed its New Zealand office, and before that he was a mergers and acquisitions lawyer.

Narev is just a year older to Clyne, who is the youngest CEO of the top four banks.

He graduated top of his masters in law class at Cambridge University in 1994.

Analysts and investors said Narev should also look at raising the bank's international focus.

CBA has a small presence in Asia but like most local peers has focused on the home market, which is seeing lending growth of just 3 percent, less than a third of the historic average.

CBA is Australia's biggest bank by market value at A$79 billion.

The bank said Narev will be paid a fixed remuneration of A$2.5 million, compared with Norris's A$2.97 million in 2010, according to the bank's annual report. ($1 = 0.922 Australian Dollars) (Additional reporting by Sonali Paul and Victoria Thieberger in MELBOURNE; Editing by Mark Bendeich and Vinu Pilakkott)