National Australia Bank is likely to position its UK bank assets for sale after separating off its troubled commercial real-estate business at the end of an ongoing review of its UK operations, two sources said.

The result of the review is due in May, and it is still classified within NAB as an operational review with a focus on raising the returns from the business that is a drag on NAB's earnings, they said.

NAB's UK bank business spans 335 branches through its Yorkshire and Clydesdale branches. It also holds about 6 billion pounds ($9.4 billion) in commercial real estate exposure, with close to a tenth of that stressed, the sources said.

Analysts estimate NAB UK assets to have a book value of around 3.0-3.5 billion pounds ($4.7-$5.5 billion) and a sale could raise anywhere between 0.5 to 0.7 times book in current market conditions, or between $2.3 billion and $3.9 billion.

The sources said the core portfolio had the likelihood of fetching closer to book value, if not more in the short term, once the real-estate exposure was hived off.

The core bank will also make it appealing to buyers, said the two sources, who declined to be named as the discussions are confidential.

The question is simple. Does NAB or its investors want the UK assets? The answer is no. The next one is can NAB afford to sell at a fat discount? Probably not, one source said.

That leads to the solution -- pretty up the bride for a good match at the right time, the source said, referring to positioning the core bank for sale and let the non-core exposure run off. The source added NAB was not in a huge hurry to sell out.

The other source said while a sale option as a whole immediately is definitely on the table, it is not the most preferred as NAB is wary of selling it at a sharp discount and incurring investor ire.

A NAB spokeswoman said the review was ongoing, and will see a repositioning of the UK business structure in the face of a challenging economic climate, with hope of improved returns.

While the retail and small-business loans boast more than 10 percent return on equity -- close to the group's total ROE of 15.2 percent -- the commercial real estate returns are bordering on negative, the sources said.

Two earlier reviews have led to a shrinking of the assets. A 2004 review of UK operations led to the sale of its Irish banks and changes to small-business banking.

After broader review of the group in 2009, NAB reaffirmed its commitment to UK and hived off some of the UK assets into a vehicle called the Specialised Group Assets. ($1 = 0.6301 British pounds)

(Reporting by Amy Pyett and Narayanan Somasundaram; Editing by Lincoln Feast and John Mair)