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Nat.Australia Bank (NAB)

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Friday 25 August, 2006

Nat.Australia Bank

Correspondence to SEC

National Australia Bank Ld
25 August 2006


Attached is a copy of recent correspondence to the United States Securities &
Exchange Commission in relation to Form 20-F for the Fiscal Year ended 30
Seprtember 2005 filed 2 December 2005


Michaela Healey

Company Secretary


National Australia Bank Limited

ABN 12 004 044 937

500 Bourke Street

Melbourne VIC 3000

Australia

Telephone: 613-8641-3500

August 21, 2006



Mr Donald A. Walker

Senior Assistant Chief Accountant

United States Securities and Exchange Commission

Division of Corporation Finance

100 F Street NE

Washington DC 20549

USA


Dear Mr Walker


National Australia Bank Limited

Form 20-F for the Fiscal Year Ended September 30, 2005 ('2005 20-F')

Filed December 2, 2005

File No. 001-9945


Thank you for your letter dated August 3, 2006 in relation to the above filing.
This letter covers the comments in your letter and our responses (according to
the captions within your letter).


References in this correspondence to the 'Group' are to National Australia Bank
Limited and its controlled entities.

All currency amounts are expressed in Australian dollars.  Page references are
references to pages of the 2005 20-F unless otherwise stated.  References to
loan loss provision and loan loss allowance are used interchangeably in this
letter.


References to AIFRS relate to the Group's adoption of Australian Equivalents to
International Financial Reporting Standards.

The Group is required to apply AIFRS as the primary basis of accounting in
Australia from October 1, 2005.


Selected Financial Data, page 7



1.   We note you have presented various non-GAAP financial measures as a part of
your Selected Financial Data.

 Please tell us in detail why you have adjusted your earnings per share before
significant items and cash earnings per

share before significant items to eliminate recurring items such as a portion of
the charge to provide for doubtful debts.

Refer to the guidance in Item 10(e)(ii)(B) of Regulation S-K.


Response:


As noted in your letter we have adjusted our reported 'Earnings' and 'Cash
Earnings' per share under the 'Australian GAAP' heading on page 7 of our 2005
20-F to exclude significant items consistent with the definition of significant
items set out on page 70, under the heading 'Non-GAAP financial measures'.  As
described on page 70:


•  cash earnings has been separately disclosed as it represents a key
   performance measure and financial target used

•  by the Group. In particular, it is one of the key inputs into the
   determination of executive and management compensation; and

•  significant items have been excluded to make it easier to identify
   underlying performance trends and issues.


The approach to disclosure of significant items is in accordance with the
requirements of Australian GAAP (AASB 1018, 'Statement of Financial
Performance,') which requires separate disclosure of items where they are '...of
such a size, nature or incidence that its disclosure is relevant in explaining
the financial performance of the entity...' This is on the basis that separate
disclosure of these items is relevant to users of financial reports in
understanding the reported financial performance of the entity and in making
decisions.


The Group and other Australian banks include this information in their filings
with the Australian Securities and Investment Commission and therefore provide
the information to Australian investors.  The Group believes the information is
also relevant to investors outside Australia.  In addition our local analysts
use such information in evaluating our current performance and in developing
expectations for our future performance.



It is on the above stated basis that these items have been separately identified
and excluded in the presentation of various non-GAAP financial items.



In any event, we believe that the approach we have adopted is consistent with
the guidance in Item 10(e)(ii)(B) of Regulation S-K, which states that a
registrant is restricted from eliminating or smoothing items identified as non-
recurring, infrequent or unusual, when the nature of the charge or gain is such
that it is reasonably likely to recur within two years or there was a similar
charge or gain within the prior two years.



In relation specifically to the significant expense classification for the
charge to provide for doubtful debts as explained on page 33, this was a one-off
adjustment made in 2004 to the methodology used to determine the accounting
estimate of the general provision for doubtful debts under Australian GAAP.
Through this, the discount rate used in the statistical model was reduced from
the shareholder cost of capital to a rate akin to a risk-free debt rate. This
discount rate is used to determine the present value of cumulative probability
of default (PD) rates used for the purpose of loan provisioning.  This
methodology change is by its nature a non-recurring event with no similar
charges or gains in our primary Australian GAAP reporting in the prior two
years.



The above response focuses specifically on loan loss provisioning under
Australian GAAP. Please refer to response to question 7 for information in
respect of loan loss provisioning under US GAAP.



Reconciliations of Non-GAAP Measures, page 8



2.   Please provide in your response letter a reconciliation of each per share
basis non-GAAP financial measure to the GAAP financial measure of earnings per
share and revise your future filings to include these reconciliations.  Refer to
the guidance provided by Items 10(e) of Regulation S-K and by Question 11 of the
Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures.


Response:


A reconciliation from net profit to the non-GAAP measures, cash earnings before
and after significant items, is included on page 8 of the 2005 20-F.  However in
order to clarify the reconciliation to the per share calculation, we have
included as Attachment 1 to this letter a more detailed supplementary
reconciliation schedule.  We will include an equivalent schedule in future
filings where we include non-GAAP earnings per share measures.


Risk Management, page 59



3.   In future filings, please revise to include a discussion of the hedging
strategies used to mitigate risk and the instruments you use to execute those
strategies.  Consider explaining the methods you use to determine that hedges
are effective.



Response:



In future filings we will include in the Risk Management section appropriate
discussion of the hedging strategies that are used to mitigate risk and the
instruments that are applied to execute those strategies.  This discussion will
include an explanation of the methods that the Group uses to determine hedge
effectiveness.

Financial Report, page 113


Note 46 - Fair value of financial instruments, page 211



4.   Please revise your disclosures in future filings to clarify how you obtain
the market values for unlisted trading, available-for-sale, and investment
securities.  To the extent that quoted market prices are not available, please
tell us what models or other methods are utilized and discuss the significant
assumptions used under each method for each type of security.



Response:


The Group obtains the fair (market) values for trading, available for sale and
investment securities from quoted market prices, where available. If quoted
market prices are not available the Group determines fair value by means of
discounting the expected cash flow using factors such as interest rates, credit
risk, liquidity and duration of the investment.  We will revise our disclosures
in future filings to clarify how the Group obtains the fair values as requested
and to discuss the significant assumptions used under each method for each
category of security.



5.   Please revise your disclosures in future filings to disclose which methods
(such as quoted market prices or discounted cash flow, option pricing, or other
models) are applied under which circumstances to value your derivative financial
instruments classified as trading and as other-than-trading.  Include a
discussion of the significant assumptions made under each method.  To the extent
that differing methods are used for similar instruments (such as swaps,
forwards), please quantify the proportion valued under each method.


Response:



The Group employs a variety of derivative financial instruments for hedging and
trading purposes under both Australian GAAP and US GAAP.

These are valued using quoted market prices, where available. Where quoted
market prices are not readily available, the Group determines fair value by
discounting expected cash flows and option pricing models that employ a number
of assumptions addressing factors such as interest rates, counterparty credit
quality, time value and volatility, liquidity, price activity for equivalent or
synthetic instruments and foreign exchange. We will revise our disclosures to
include in future filings the methods that are applied, the related significant
assumptions and, to the extent that differing methods are used for similar
instruments (such as swaps, forwards), provide quantification of the proportion
valued under each method where material.



Note 56 - Reconciliation with US GAAP and other US GAAP disclosures



Note 56(c) - Goodwill, page 239



6.   In future filings, please revise to include the total carrying amounts of
goodwill and other intangibles for each reportable segment and disclose any
significant changes in the allocation of goodwill by reportable segment on a US
GAAP basis.

Refer to the guidance provided by paragraph 45 of FAS 142.



Response:


In future filings we will revise our disclosures to include the total carrying
amounts of goodwill and other intangibles attributable to each reportable
segment.  Where applicable we will disclose any significant changes in the
allocation of goodwill to reportable segments on a US GAAP basis.



Note 56(j) - General provision for doubtful debts



7.   We note that you have changed your method for determining your provision
for doubtful debts for the purposes of US GAAP and reported this as a change in
accounting estimate in your reconciliation to US GAAP in both 2004 and 2005. 
Please tell us in your response letter the specific changes you made and the
reasons you determined that such a change was necessary for each year.



Response:


2005 adjustment


The Group is required to apply AIFRS as the primary basis of accounting in
Australia from    October 1, 2005.  AASB 139, 'Financial Instruments:
Recognition and Measurement,' (AASB 139) is the AIFRS standard that provides
guidance with respect to loan loss provisioning.


The accounting guidance provided under AASB 139 is consistent with US GAAP with
respect to loan loss provisioning, albeit AASB 139 provides more specific
guidance in respect to certain aspects of the provisioning calculation.  In view
of this, at 30 September 2005 we decided to align our US GAAP loan loss
provisioning methodology to ensure consistency with AASB 139.  Through this,
refinements were made to our US GAAP loan loss provisioning estimate. Examples
of the greater guidance provided in AASB 139 include, but are not limited to:


•  increased guidance on the identification of objective evidence of impairment; 
   and

•  the calculation and recognition of losses incurred but not reported at 
   balance sheet date.


Given the more specific requirements of AASB 139, alignment of our US GAAP loan
loss provisioning with AIFRS as at 30 September 2005 resulted in a decrease to
the US GAAP loan loss provision of $194 million (pre-tax).


As the development of the AIFRS provisioning methodology has involved
refinements to estimates, the change to the US GAAP loan loss provision has
therefore been treated as a change in estimate with the adjustment consequently
recognised through 2005 net income.  As part of our process of refining
estimates we did not identify any errors in our previous reporting that required
correction.

2004 adjustment

In 2004, the Group made two distinct and separate changes to loan loss
provisioning estimates. One of these (as discussed earlier under Question 1) was
in relation to our Australian GAAP reporting and reflected a change in the
discount rate applied to probabilities of default. This remains the only change
to loan loss provisioning estimates that has been made to our primary Australian
GAAP reporting and therefore supports the treatment as a significant item as
discussed under Question 1.


The second adjustment in 2004 was to our US GAAP loan loss provisioning and is
not directly linked to the above adjustment made under Australian GAAP (except
to the extent the change in discount rate under AGAAP changed the quantum of the
US GAAP reconciling item - discussed below).


In relation to the US GAAP adjustment, as noted on page 241 of our 2005 20-F, in
2004 we adjusted our loan loss provisioning under US GAAP and introduced a
reconciling difference between Australian GAAP and US GAAP.


As background to this adjustment, during 2004 the Group re-considered its US
GAAP reconciliation in relation to loan loss provisioning to ensure that the
conclusion that there were no material differences between AGAAP and US GAAP
remained appropriate.  As part of this review, two areas were identified for
specific consideration.  These related to the application of a discount rate to
the calculation of PDs and the use of the full contractual maturity for the term
of non-retail facilities in the loan loss model.


At the time of the review it was concluded that these two items should both be
reversed for the purposes of our US GAAP loan loss provisioning. A reconciling
difference of $156 million pre tax ($109 million post tax) was therefore
reported in the 2004 20-F. In prior years the differences were not material to
the financial statements and no adjustments were made for those years.


8.   As a related matter, in prior years you have represented that any
differences in accounting for purposes of US GAAP were not material, however you
have disclosed that you made changes to your methodology in order to ensure
consistency with the application of the requirements of FAS 5 and FAS 114. 
Please tell us:


•   how you determined that each adjustment should be recorded in the current 
    year; and

•   how you determined that the changes you made in each year were not error 
    corrections for US GAAP reporting.


Response:


Please refer response to question 7 above.

Finally - as requested, in connection with our response National Australia Bank
Limited acknowledges that:


•   the company is responsible for the adequacy and accuracy of the disclosure 
    in the filing;

•   staff comments or changes to disclosure in response to staff comments do not 
    foreclose the Commission from taking any action with respect to the filing; 
    and

•   the company may not assert staff comments as a defense in any proceeding 
    initiated by the Commission or any person under the federal securities laws 
    of the United States.


Yours sincerely

Michael Ullmer

Finance Director and CFO                                                              

National Australia Bank Limited                                                                                 



Attachment 1

Reconciliation of non-GAAP financial measures

                                                      Group                 
                                       2005    2004    2003    2002    2001 
                                         $m      $m      $m      $m      $m 
  Reconciliations of non-GAAP                                               
  measures                                                                  

  Reconciliation of earnings to                                             
  cash earnings before significant items                                                                     
                                                                            
  Earnings                                                                  

  Net profit attributable to          4,132   3,177   3,955   3,373   2,083 
  members of the Company                                                    

  Adjusted for                                                                       

               Distributions on       (204)   (187)   (183)   (187)   (213) 
               other equity                                                 
               instruments                                                  

  Adjusted earnings for basic         3,928   2,990   3,772   3,186   1,870 
  earnings calculations                                                     

  Adjusted for                                                                       

               Significant revenue  (2,493)   (993)   -     (2,671) (5,314)
               Significant expenses   2,209   1,675   -       3,266   6,866 
                                                                            
               Income tax             (87)    (298)   -       (189)   384   
               expense/(benefit) on                                         
               significant items                                            

  Adjusted earnings for basic         3,557   3,374   3,772   3,592   3,806 
  earnings calculations before                                              
  significant items                                                         

  Potential dilutive adjustments                                            

               Interest expense on    106     112     90      102     102   
               exchangeable capital                                         
               units                                                        

  Adjusted earnings for diluted       3,663   3,486   3,862   3,694   3,908 
  earnings calculations before                                              
  significant items                                                         
                                                                            
  Cash Earnings                                                             

  Adjusted earnings for basic         3,928   2,990   3,772   3,186   1,870 
  earnings calculations                                                     

  Adjusted for                                                                       

               Movement in the                                              
               excess of net market                                         
               value over net                                               
               assets of life                                               
               insurance controlled   
               entities               (335)     137     160     155   (510) 
                                      
               Income tax                                                   
               expense/(benefit) on                                         
               movement in the                                              
               excess of net market                                         
               value                                                        
               over net assets of        
               life insurance                                                
               controlled entities     (10)   (153)      40     (3)    177
                                     
               Amortisation of           98     103      98     101    167   
               goodwill                                                     

  Adjusted cash earnings for basic    3,681   3,077   4,070   3,439   1,704 
  earnings calculations                                                     

  Potential dilutive adjustments                                            

               Interest expense on    106     112     90      102     102   
               exchangeable capital                                         
               units                                                        

  Adjusted cash earnings for          3,787   3,189   4,160   3,541   1,806 
  diluted earnings calculations                                             
                                                                            
  Adjusted cash earnings for basic    3,681   3,077   4,070   3,439   1,704 
  earnings calculations                                                     

  Adjusted for                                                                       

               Significant revenue  (2,493)   (993)   -     (2,671) (5,314)
               Significant expenses   2,209   1,675   -       3,266   6,866 
                                                                            
               Income tax                
               expense/(benefit) on                                         
               significant items       (87)   (298)   -       (189)     384                                      

  Adjusted cash earnings for basic    3,310   3,461   4,070   3,845   3,640 
  earnings calculations before                                              
  significant items                                                         

  Potential dilutive adjustments                                            

               Interest expense on       
               exchangeable capital                                         
               units                    106     112     90      102     102                                      

  Adjusted cash earnings for          3,416   3,573   4,160   3,947   3,742 
  diluted earnings calculations                                             
  before significant items                                                  
                                                                            
  Total weighted average ordinary 1,559,118  1,515,270 1,515,871 1,549,136 1,538,633
  shares - Basic          

  Total weighted average ordinary 1,626,226  1,581,810 1,585,558 1,623,601 1,606,140
  shares - Diluted                     


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