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RBS pledges to boost lending by £9bn this year

The Royal Bank of Scotland has promised to boost mortgage lending by £9bn this year in exchange for its participation in the Treasury’s Asset Protection Scheme.

RBS will siphon £325bn of toxic assets into the scheme and receive an extra £13bn from the government to boost its core Tier 1 capital.

In return, RBS has committed to £25bn of new lending, with £9bn for mortgage lending and the remaining £16bn for business lending. A further £25bn in lending has also been promised for 2010.

This has been agreed against a backdrop of record losses of £24.1bn for RBS – the biggest in corporate history. As part of its involvement in the scheme RBS will bear losses of up to £19.5bn on assets placed in the scheme. Losses incurred over £19.5bn will be borne 90% by the Treasury and 10% by RBS.

The scheme will only apply to losses incurred after January 1 2009.

RBS will have to pay the Treasury a fee of £6.5bn to participate in the scheme. The government has also increased its stake in RBS by £13bn, meaning taxpayers now own a whopping 83% of RBS.

Stephen Hester, chief executive of RBS Group, says: “Participation in this scheme would help us reduce risk for our shareholders while providing support for our customers via increased lending.

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