UK body lowers estimate of RBS risky loan losses

LONDON Jul 14 (Reuters) - The estimate of potential losses from risky Royal Bank of Scotland loans which were ring-fenced under a government scheme has been lowered to 45 billion pounds ($72 billion) from 57 billion.

The Asset Protection Agency - set up in 2009 to insure some 230 billion pounds of toxic assets held by RBS -- added in a report on Thursday that the British government was on track to pocket an overall 5 billion pound profit from the scheme.

"Her Majesty's Treasury is well on course to make an overall 5 billion pound profit, without having to pay out under the scheme," the Asset Protection Agency said in a statement.

The cover for those toxic RBS assets operates like a conventional insurance policy. If RBS's assets fall in value, then the bank will absorb the first 60 billion pounds of losses.

Further losses would be shared by RBS and the government, with RBS taking 10 percent of the loss and the government 90 percent.

The reduction in the estimate of potential losses from those toxic RBS assets highlights the part-nationalised British bank's slow path to recovery following its near collapse during the credit crisis.

RBS was bailed out in October 2008 after its finances were stretched by the credit crisis and its part in the acquisition of Dutch bank ABN AMRO in 2007, and the British government ended up with an 83 percent stake in the bank.

RBS has said it could exit the asset protection scheme for its toxic assets by 2012. ($1 = 0.624 British Pounds) (Reporting by Sudip Kar-Gupta; Editing by Myles Neligan)