Hester hits back at RBS nationalisation suggestions

Stephen Hester, chief executive of Royal Bank of Scotland has hit back at suggestions calling for full nationalisation of the bank after he admitted the reputation of the industry was down to new lows, the Financial Times reports.

RBS, owned 82 per cent by taxpayers, set aside £435 million in the first half to refund customers that were mis-sold financial products and those who were affected by a recent systems crash. The charges helped the lender end up in the red to the tune of £1.5 billion which was almost double the loss it made last year.

Hester's remarks came after revelations this week that certain senior government ministers were looking at the possibility of taking full control of the bank to force it to lend more to small businesses.

Hester said if there was a political decision to make loans to riskier borrowers ... there were cheaper ways than buying back RBS. Vigourously defending RBS's lending record, he said the bank was  ''trying to lend as much as we prudently can''. He added the only constraint was the creditworthiness of borrowers.

Overall RBS had raised lending to households and businesses by 4 per cent since 2008. and net lending to SMEs was 2 per cent lower in the first half than in the previous six months, while credit applications from the customers fell 18 per cent year-on-year.

However RBS remains optimistic it would gain the required regulatory approval to exit the asset protection scheme, that had insured £280 billion of risky loans, later this month. It has also plans for opening the EU mandated sale of its Direct Line insurance business with the first tranche set for October.