MELBOURNE, Australia--The initial public offering of National Australia Bank Ltd.'s (NAB.AU) regional banking business in South Dakota priced below earlier expectations.

Still, the Australian lender said it attracted strong demand despite the recent volatility in U.S. equity markets.

The 16 million shares in Great Western Bankcorp Inc. that NAB is offering priced at $18 a share, below the $21-$24 that the bank was anticipating.

NAB will collect gross proceeds of $288 million for the near-28% stake it will list on the New York Stock Exchange. That could rise to $331 million if underwriters led by Deutsche Bank and Bank of America-Merrill Lynch fully exercise their right to buy an additional 2.4 million shares, Melbourne-based NAB said in a statement Wednesday.

"Pleasingly the deal attracted strong representation from a broad range of quality investors, with the book well covered," Chief Executive Andrew Thorburn said.

NAB plans to sell its entire 100% stake in Great Western over time to focus on its core franchises in Australia and New Zealand. Mr. Thorburn said a progressive sale of Great Western is expected to lift the bank's Common Equity Tier 1 capital ratio.

The regional U.S. bank operates 162 branches throughout South Dakota, Iowa, Nebraska, Colorado, Arizona, Kansas and Missouri. Its net income was $77.1 million in the nine months through June, according to regulatory filings.

Great Western is set to begin trading Wednesday under the ticker symbol GWB. If the underwriters take up their option for the additional shares, NAB will hold an around 68% interest in Great Western. An initial 180-day lockup period prevents it from selling more shares quickly.

Corrie Driebusch contributed to this article

Write to Robb M. Stewart at robb.stewart@wsj.com

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