Stephen Hester told an audience of investors in the bank, which is 81% owned by the taxpayer, that RBS was poised to exit the asset protection scheme (APS), which insures its most toxic loans.
RBS, which was rescued four years ago with £45bn of taxpayers' money, has since slashed more than 30,000 jobs and cut £700bn – equal to double the national debt of Greece – from the bank's once vast balance sheet. Hester said: "RBS is nearing the point of becoming a recovered bank and well on the way to being a good bank".
Some 3,800 jobs will be cut from the investment bank by the end of the year, 300 more than announced in January, as Hester shrinks the most troublesome parts of the company. He indicated that problems he had inherited – involving compensating customers for mis-selling payment protection insurance and interest rate swaps, as well as a potential fine for attempting to manipulate Libor – would continue to weigh on the bank.
"We have to all deal with the issues of the past and try and reduce the chance of them recurring and that will take a long time and, sadly, a lot of money as well in terms of past restitution," Hester said.
He added that the banking business had to "accept that society has a different attitude and determination to make sure that banks behave in a different way and improve their reputation".
He set out a five-year recovery plan for RBS when he was appointed to replace Fred Goodwin in October 2008. "I hope by 2013 the restructuring phase should be largely complete and I hope that our ongoing businesses should be largely retooled and performing at least in line with competitors, with robust, enduring and valuable franchises at that point."
On the path towards normality, he said RBS needed to exit the APS was a "milestone". "Hopefully that is imminent," he said. He added that once that happened "we can start articulating a dividend policy going forward".
The EU ban imposed on RBS after its bailout to prevent it paying dividends has been lifted but the bank is not yet financially strong enough to make payments to shareholders.
Analysts expect RBS, which reported a record-breaking £24bn loss in 2008, to remain loss-making this year and next, although on a much smaller scale.
Criticised by politicians and businesses for not lending enough through the economic downturn, Hester insisted RBS had increased its lending and "wished" he could lend more. "We're hoping for more demand," he said.
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