The reprivatisation of RBS will be a symbol not just of the bank's recovery but of the "broader revival of the UK", says RBS Group chief executive Stephen Hester.
Speaking at MBS on the very day that the UK officially slipped back into recession, Hester admitted that the pace of improvement at RBS would be guided by the "health and growth" of customers. "We recognise that our fortunes are bound together with customers," he said.
Regards the continued debate over UK bank lending, Hester said people had to remember that times remained tough. "In every recession bank lending does not take off until about two years after the economy takes off again. People feel risk-averse and in such a climate it is not surprising that bank lending is weak."
Hester said the climate remained particularly challenging for real estate lending and for lending to businesses which were now weaker than three years ago. But he stressed that last year the bank approved nine out of ten of all requirements from small businesses. "The key thing that will drive borrowing is confidence," he added.
Hester admitted that RBS, which made £6.1bn profit last year, had itself needed to surpass its own targets because of the state of the economy. "The outside world has been more challenging and the economic recovery slower and more challenging than we thought."
Indeed Ismail Ertürk, senior lecturer in banking at MBS, says Hester still has a colossal task to turn the bank around. "Most factors that will influence RBS's ultimate success are out of his control because the UK economy is weak and is likely to remain weak, while the eurozone crisis has not ended either."
However Hester insisted that RBS in 2012 was "a long way" from RBS in 2008. "When I became chief executive I knew that at its heart RBS was a terrific business that could be revived and that we could succeed in turning it around. That core belief has been tested at points but remains intact."
Hester said the greatest test was balancing short and long term challenges. "While defusing the biggest banking timebomb in history it was important to ensure the core bank grew in parallel. You can be as clever as you like restructuring but if you have nothing left at the end it is a waste of time. We had to ensure what was left was lasting and enduring. We had to urgently understand the dimensions of what we were dealing with. We needed a vision and a road map, engage people in the vision, and then recapture the energy, drive, enthusiasm and commitment from a lost and demoralised institution."
Hester said the most difficult and risky work had now been achieved, but stressed there was no room for complacency. "The government money was enough to keep us afloat but not enough to pay for the clean up. The job is not finished and we have two more years of heavy lifting, but enough has been done to give us confidence that we will finish the job."
Finishing the job also means the disposal of the government's 82 per cent stake in the bank. Added Hester: "Governments are not good long-term owners of international businesses. Our job is to be able to stand alone without government support and recover the bank to make government support unnecessary."
However Erturk says he cannot see UK taxpayers getting a fair return in the near future from the bail-out. "There are also uncertainties about what RBS will do with its problematic investment banking arm. The question of whether RBS should remain as an opaque universal bank or should be split into a transparent utility retail bank and risk-taking investment bank still remains unanswered, and this should be a worry for taxpayers who are interested in a fair valuation of the company."
Erturk added that another important question is to what extent the current profitability of RBS is due to benign but unsustainable market interventions in the form of quantitative easing by the Bank of England and the long-term refinancing operation by the European Central Bank.
However behind the headlines of bank bashing and bonuses Hester said he believed a new RBS was emerging with the ability to stand out again for the right reasons. "At a business level we are already performing in line with our competitors. In the future I expect us to be a smaller, tighter and more sustainable bank but still a very large bank. Our goals are to be really good at what we do and be an integral part of the communities we serve."
Hester added that one of the biggest rewards would be returning a richly deserved sense of respect back to RBS workers. "I have to show RBS people how we can win and complete our journey back to success and prove our critics wrong. We are becoming safer and there is no going back. I am determined that we pull off this recovery, the prize is huge to us all. Ultimately RBS matters. We matter to UK taxpayers, matter to 30 million customers, matter to the third of all UK companies that bank with us. It matters whether we are safe and stable."
Regards banker pay, Hester stressed that out of the 150,000 people employed by the bank, only "single digit hundreds" came into the high pay bracket, while average pay across the business was £20,000. "Throughout the world the gap between top earners and median earners has been expanding. My job is to get value for money but if all the good people are going to work somewhere else I am not doing myself any favours."
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