LONDON (Reuters) - Britain should end the uncertainty over long-term plans for state-controlled Royal Bank of Scotland (RBS.L), a senior Bank of England official said on Wednesday.
Paul Fisher, the BoE's markets director, said RBS's ability to attract investors and sustain lending was being hampered by a lack of clarity over when it would be returned to the private sector and whether it might be split up.
Britain's government ploughed 45.8 billion pounds ($71.4 billion) of public money into RBS to save it from collapse in 2008, and now holds an 81 percent stake in the bank.
Finance minister George Osborne will signal that the time is right to offload the government's shareholding in an annual speech to financiers on June 19, political and industry sources said on Monday, but he is not expected to explain how.
Senior lawmakers are expected to report shortly on whether it would be better to break up RBS instead. Outgoing Bank of England Governor Mervyn King has said RBS would have benefited from a much more radical restructuring.
Fisher - who is in charge of a BoE scheme to boost bank lending - said this lack of clarity was damaging.
"As a matter of market management, I think it is the uncertainty about RBS which has been holding investors back," Fisher said at an investment conference in London.
"People have been saying to us that they don't want to invest in RBS or provide capital because they don't know what is going to happen to the bank," he added.
Boosting bank lending is a key priority for the BoE and Britain's government, which together set up a scheme last year that offers banks cheap finance if they lend more to support a sluggish economic recovery.
"Individual banks are now awash with liquidity," Fisher said, adding that he hoped that businesses' demand for loans would rise as economic confidence returned.
In April, a Funding for Lending Scheme was extended by another year into 2015, and tweaked to give banks a greater incentive to lend to small businesses rather than home buyers.
Fisher said the BoE wanted to see more property purchases, but not a rise in house prices, which he said were high already.
Fisher serves on both the Bank of England's Monetary Policy Committee, which sets interest rates, and its new Financial Policy Committee, which regulates the financial system.
Fisher is among the minority of MPC members who have voted since February for the central bank to buy more bonds with newly minted money to aid the economy's recovery. On Wednesday he said the economy still needed support.
Additional reporting by Christina Fincher. Editing by Jane Merriman