Royal Bank edges closer to full recovery as it cuts ties with government scheme

The part-nationalised Royal Bank of Scotland took a major step towards returning to the private sector yesterday by ending its involvement in a government scheme to cover its riskier assets.

RBS will also save £1.4 million a day when it exits the Asset  Protection Scheme (APS), having paid £2.5 billion in insurance on its poorer-quality assets since signing up in February 2009.

Chancellor George Osborne said: “The government’s strategy remains to return RBS to the  private sector when it is value for the taxpayer to do so.

“Today is a step in that  direction.”

The APS, from which RBS never had to make a claim, provided backstop credit insurance for a portfolio of RBS assets and derivative exposures.

It played an important role in stabilising market perceptions of RBS after the impact of the financial crisis became clearer and the bank’s share price fell to a low of 10p in February 2009. This gave time for the bank’s new board and management to put its recovery plan into effect.

The government agreed to insure £282bn of assets when RBS formally entered the APS and those assets have since fallen to about £105bn, a reduction of 63 per cent.

RBS chief executive Stephen Hester, said: “We all want a system in which banks will never again need to seek credit support from government in a  financial crisis.

“Huge progress has been made towards that goal and our exiting the APS is a significant milestone in RBS’s recovery.

“The APS has played a valuable role, buying time for the bank as we implemented change from the worrying days of 2009 to create the much stronger institution it is today.”

Mr Hester added: “The changes RBS needed to make after 2008 were truly radical. Much progress has been made along that road.

“There is much work still under way.

“But RBS and all who rely on us are better off for the strong progress already made.”

Earlier this year, RBS also repaid £163bn in emergency loans, including £36.6bn in emergency liquidity assistance from the Bank of England, and some £52bn from the US Federal Reserve, as well as £75bn from the Credit Guarantee Scheme.

But the bank, along with others across Europe, is still receiving some central bank support via the €10bn (£8bn) of cheap three-year loans from the European Central Bank’s long-term refinancing operation.

The lender faces a number of hurdles ahead, including an expected penalty in the Libor- fixing scandal.The handling of the inter-bank lending rate is being investigated at RBS after Barclays was fined by regulators earlier this year.

The bank is also being investigated for possible breaches of US economic sanctions against Iran.

Yesterday’s announcement was welcomed in the City, with shares in RBS closing 2 per cent up, by 6.1p to 286.1p.

One of the ten biggest investors in the bank, who asked not to be named, said: “This is positive news, as it had been rumoured over the summer that the exit might be delayed into 2013. There is a small additional positive today in that there are no onerous conditions  attached.”