Capital barrier may rule out newcomer buying RBS branches

HOPES that 320 Royal Bank of Scotland branches south of the Border will be sold to a new banking market entrant appear to be fading as documents reveal bidders will need to stump up £2 billion of capital to support the network's £24bn loan book.

Politicians had hoped that the sale – required under European Union state aid rules – would help increase competition if the network went to one of the hopefuls jostling to gain a foothold in the UK market.

But documents sent to prospective bidders reveal that around 2bn will be needed to support the network's loan book, which is almost the double the sum originally estimated.

Banking sources say the increased sum will make it harder for a new entrant to take over the branch network. They estimate that only a large, established bank would have the capital required to support the loan book.

One source told The Scotsman: "Because it's not a standalone organisation, the buyer would have to have the capital to effectively support a bank.

"It's going to have to be an established bank (that takes over the branches] and not one of these 'pseudo-banks' that have been touted."

The revelations have narrowed the odds on Santander leading a successful bid as analysts say it is one of the few potential contenders with enough capital to support the loan book. Around 12bn of the network's loans are to small businesses, some 7bn to retail customers and the rest to corporates.

Virgin Money is said to be concerned about potential funding issues.

RBS declined to comment on the matter yesterday.

• RBS is re-focusing its research on larger, more profitable FTSE 250 companies.

The bank's head of small company research, Richard Rae, resigned from RBS last year. It is understood senior executives have since been pushing for the bank's constrained resources to be poured into larger firms, with the potential to yield bigger returns.

An RBS spokesman said the move was "not a wholesale change but a refocusing".