National Australia Bank's (NAB) hunt for British takeover targets could be on again, as reports have linked it with UK bank Abbey National.

Advisers for the two have held exploratory talks on a merger, the Financial Times reported.

Neither side would confirm the reports, but analysts say a tie-up would make sense.

NAB - which already owns Britain's Clydesdale, Yorkshire and Northern banks - is hungry for international acquisitions, and its coffers have been swelled by a surge in its share price and the Australian dollar.

Abbey National, meanwhile, has made no secret of its openness to takeover offers, and talks between the two firms have been rumoured on and off for the past three years.

Merger of equals

Both banks are roughly the same size, with NAB just beating Abbey in terms of current market capitalisation.

This makes it likely that any link-up between the two would be a merger of equals, with the resulting firm having a dual listing in London and Sydney.

But such deals are notoriously tricky to structure, particularly in contrast to a straightforward takeover.

The main fear is that NAB shareholders might baulk at absorbing Abbey, whose shares trade at a less favourable multiple of earnings because of the more competitive UK banking market.

Shareholders revolt

Some NAB shareholders are starting to question the bank's policy of driving overseas, arguing that its dominant position in the booming Australian market offers the best results.

Last year, NAB had to write off 2.2bn Australian dollars (�800m; $1.2bn) in relation to its US HomeSide Mortgage Lending business.

The reasoning behind NAB's overseas ambitions is that regulation prevents it boosting market share at home.

The bank generates a great deal of surplus cash, which management wants to plough into acquisitions rather than return to shareholders.

Home sweet home

At the same time, shareholders in Abbey National, who include a high proportion of small investors, may not be keen to receive shares in an unfamiliar Australian company.

Possible synergies between an Australian and a British company are limited by geography, analysts fear.

Abbey has said it is looking for a European partner, and has previously attempted to merge with Lloyd's-TSB, a deal that was blocked by competition authorities.