UPDATE 1-RBS split an option, but British finance minister wary

Tue Mar 26, 2013 12:28pm EDT

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LONDON, March 26 (Reuters) - Splitting the state-backed Royal Bank of Scotland to rid it of bad assets is an option but would be a slow process, Britain's finance ministry said on Tuesday.

A ministry official speaking to lawmakers alongside finance minister George Osborne said: "Obviously this is an option."

Osborne sounded cautious about the prospect.

"While of course we can discuss the merits and demerits of a good bank-bad bank split, I don't think it could be very swiftly delivered," he said.

Osborne also said it was unclear that a cleaned-up RBS would be better able to lend to the real economy and so provide a quick boost to growth.

The ministry official added that if bad assets were taken out of RBS, "the good bank would incur a capital loss and that would create a hole in the organisation's balance sheet".

Controversy over lending to loan-starved small businesses and executive bonus payments have dogged the government's dealings with the bank, which is 82-percent owned by the state but independent of ministerial control.

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