* Sale to generate small gain above net book value
* NAB's UK biz continue to face challenges- incoming CEO
* UK business has been a drag on earnings for many years (Adds exec comment, background, details throughout)
MELBOURNE, July 28 National Australia Bank Ltd has agreed to sell a 625 million pound ($1 billion) portfolio of mostly non-performing UK commercial property loans to an affiliate of private equity firm Cerberus Global Investors.
NAB, which has seen its UK business drag on earnings in recent years, declined to disclose the sale price. But it said the sale would generate a small gain above net book value and would release about 127 million pounds in capital for the group.
NAB owns the Clydesdale and Yorkshire Banks in the United Kingdom.
The sale, which includes loans that are either in default, passed maturity or nearing maturity, will cut NAB's gross loans balance of its UK commercial real estate portfolio by a fifth to 2.38 billion pounds and cut gross impaired loans by nearly half.
NAB and rivals - Commonwealth Bank of Australia, Australia and New Zealand Banking Group and Westpac Banking Corp - are set to notch up a sixth year of record profits, helped by a focus on plain vanilla mortgages and business lending.
But NAB shares have underpeformed its rivals, partly due to problems at its UK businesses. Its Clydesdale Bank has been compensating customers after discovering in April 2009 it had miscalculated repayments on 42,500 mortgages.
"While pleased with the acceleration of the run-off in the NAB UK CRE portfolio our broader UK operations still face some challenges, in particular in relation to conduct related costs," incoming Group Chief Executive Officer Andrew Thorburn said in a statement.
Its shares are down 0.7 percent since the start of the year. That compares with a gain of more than 4 percent in the benchmark S&P/ASX 200 index. ($1 = 0.5891 British Pounds) (Reporting by Sonali Paul and Swati Pandey; Editing by Edwina Gibbs)