* Exploring long-term partnership with Nippon Life
* Partnership to manufacture life products
* Nippon to buy NAB's life unit for up to $2.6 bln - media
* NAB shares down 0.5 pct in firm Australian market (Adds analyst comment, industry context, shares)
By Swati Pandey
SYDNEY, Oct 15 (Reuters) - National Australia Bank NAB.AX on Thursday said it is exploring a long-term partnership with Japan's Nippon Life Insurance Company NPNLI.UL , as Australia's No.1 lender by assets looks to improve returns in its wealth business.
The two had signed a non-binding agreement with a view to manufacture life insurance products but any future transaction was uncertain and would be subject to regulatory approvals, NAB said in a statement to the stock exchange.
A NAB spokeswoman declined to comment on media reports in both countries that Nippon would buy NAB's life business for up to $2.5 billion.
The insurance business sale would help NAB focus on its core banking business in key markets Australia and New Zealand. The bank is speeding up asset sales to catch up with rivals after being held back by its troubled UK business for years.
"The (insurance) business has been under-performing and is a drag on NAB's return on equity. If they can get it out of the way it would be a positive but with today's announcement I am not reading too much into it," Morningstar analyst David Ellis said.
NAB has the weakest ROE of 12.2 percent among Australia's four biggest banks. That compares with 17.9 percent for Commonwealth Bank of Australia CBA.AX , 15.6 percent for Westpac WBC.AX and ANZ Banking Group's ANZ.AX 15 percent.
NAB acquired the life insurance business as part of its wealth management division MLC, which it bought from Lend Lease LLC.AX in 2000 for about $4 billion. The life insurance operations account for about 20 percent of MLC.
In May, NAB announced a tie-up with a major global reinsurer, without identifying it, to help release A$500 million ($365.10 million) of core tier-I capital to the group.
Shares in NAB were trading down 0.5 percent in morning deals while the broader market .AXJO was up 0.3 percent. Other banks were trading in the red as well.
($1 = 1.3695 Australian dollars)