National Australia Bank said it plans to sell its British operations by early 2016, two months later than expected, revealing for the first time how it intends to exit a business that has frustrated shareholders for years.

CEO Andrew Thorburn, who made the exit a priority when he took office last August, said some of the under-performing operations would be spun off and others sold through an initial public offering, in what he called a "complex transaction".

The announcement came as Australia's No.1 lender by assets missed market expectations with a 15.5 percent rise in annual profit, with net interest margins slipping to a record low of 1.87 percent due to stiff business lending competition.

"This company has been so distracted for so long. We can now see almost an end to that," Thorburn told reporters, referring to the British exit.

"That is going to be so uplifting and enable consistent ongoing focus on our Australian New Zealand franchise."

The British business, which NAB bought in the late 1980s, has been plagued by bad debts and misconduct charges.

An exit would help NAB focus on its core Australian and New Zealand franchise, where returns are stronger and safer. At about 12 percent, NAB has the weakest returns on equity of Australia's "Big Four" banks.

Under an plan which will be put to shareholders for approval in late January, about 75 percent of shares in CYBG, the holding company for Britain's Clydesdale Bank Plc, would be offered to NAB shareholders, while 25 percent would be sold in an IPO.

MISCONDUCT CHARGES

NAB posted cash profit for the year to Sept. 30 of A$5.8 billion ($4.13 billion), missing consensus forecasts of A$6.3 billion mainly due to provisions it had to make against possible fines in Britain.

British regulators asked the bank to provide 1.7 billion pounds ($2.6 billion) of capital to cover possible charges relating to the mis-selling of loan insurance and hedging products. Of that, it provided 465 million pounds in the six months to September.

NAB shares underperformed the broader market on Wednesday, falling 2.07 percent after the weaker-than-expected earnings announcement. Analysts said some shareholders had hoped for a speedier resolution to the British problem.

NAB also confirmed the sale of 80 percent of its insurance unit to Japan's Nippon Life Insurance Co for $1.7 billion, helping it improve returns in its wealth business.

The sales of low-returning businesses would help NAB boost FY15 return on equity by 200 basis points to 14.6 percent, the bank said.