National Australia Bank (NAB) is in merger discussions with NBNK, a UK group that plans to bid for Lloyds Banking Group's 632 branches, The Telegraph reported.

NBNK was launched in 2010 by its co-founder Sir Peter Levene, who is also chairman of Lloyd's of London. It was formed with the main objective of buying British banking assets and is backed by high profile London finance executives and investors, including wealth manager Aviva and Invesco.

Besides the planned bid for the 632 Lloyds branches, mandated to be sold by the European Commission in exchange for receiving state aid, NBNK is also planning to buy Clydesdale Bank and Yorkshire Bank, which NAB owns.

If the planned purchases would push through, the new bank to be created would have 971 branches with more than $56.3 billion (EUR 40 billion) in deposits.

Another bank that NBNK could bid for is the nationalized Northern Rock, however, it is not allowed to make an offer until Nov. 1 because the bank is run by former Northern Rock Chief Executive Gary Hoffman.

NAB, which also owns Bank of New Zealand, reported in August unaudited cash earnings of $1.4 billion for the June quarter.

NAB Chief Executive Cameron Clyne attributed the high earnings to the bank's strategies and contributions from its banking operations in Australia, New Zealand and UK.

"This was achieved despite considerable challenges including Australia's multi-speed economy, subdued system credit growth and fragile consumer confidence in all the markets in which we operate, and concerns about U.S. economic growth and European sovereign debt," Mr Clyne said in a statement quoted by Dow Jones.