National Australia Bank said its UK banks' earnings would fall in 2005 but forecast sustained growth by May 2007.
National chief executive Mr John Stewart said Britain was an attractive market with a positive outlook and was big enough for smaller banks to compete profitably in niche markets.
"May 2006 to 2007 is the target area. By that time not only would we have turned it around, we believe, the growth that we can show is actually sustainable," Mr Stewart told reporters.
The bank would be interested in a UK acquisition if it helped speed up its recovery.
The National has sold its two struggling Irish banks for a profit of about 1.1 billion Australian dollars (€1.4 billion) last year but has retained Clydesdale Bank in Scotland and Yorkshire Bank in north England, which have both been hit by higher costs and declining margins.
Shares in Australia's biggest bank recovered some lost ground to close down 0.5 per cent at 29.98 Australian dollars off an intraday low of 29.72 Australian dollars. The broader market ended up 0.67 per cent at a record closing high.