UPDATE 1-NAB sells $1.9 bln UK commercial real estate loans

(Adds details about NAB’s property book, UK operations)

SYDNEY, Dec 16 (Reuters) - National Australia Bank will sell 1.2 billion pounds ($1.88 billion) of mostly non-performing UK commercial property loans to private equity firm Cerberus Global Investors as it looks to exit its low-returning UK business.

NAB said on Tuesday the sale would generate a small gain on net book value and would release 127 million pounds in capital for the group, which owns the Clydesdale and Yorkshire Banks in the United Kingdom.

NAB, Australia’s fourth largest bank by market value, has made exiting its UK operations a priority after writedowns for the troubled business led to a 10 percent decline in annual cash profit.

NAB’s UK business has been a persistent thorn in its side, with charges for bad and doubtful debt responsible for annual profit declines four times since 2008.

In July, it had agreed to sell 625 million pounds of mostly non-performing UK commercial property loans.

Following the sale announced on Tuesday, its UK commercial real estate portfolio will be reduced to 836 million pounds, compared to 5.6 billion pounds in October 2012, it said.

“The sale of these higher risk loans ... is another important milestone in our strategy of reducing our low returning legacy assets and sharpening our focus on our core Australian and New Zealand franchises,” NAB Chief Executive Officer Andrew Thorburn said in a statement.

“Pleasingly the remaining NAB UK (property) loans are largely strong performing loans, and we will look at other options to manage this small remaining portfolio,” he added.

NAB said the transaction was not subject to regulatory or other external approvals, and the assets will immediately be de-recognised from the group’s balance sheet.

NAB shares have underformed its peers this year. They are down 9.6 percent year-to-date compared with a 3.1 percent fall in the benchmark S&P/ASX 200. Commonwealth Bank of Australia is up 4.5 percent while Westpac Banking Corp has fallen 1.7 percent in the period. ($1 = 0.6397 pounds) (Reporting by Swati Pandey; Editing by Diane Craft, Bernard Orr)