LONDON (Reuters) - Royal Bank of Scotland (RBS.L) could be asked to increase the size of the Williams & Glyn business it plans to sell next year after the British government asked for a speedy review of its impact on competition in the banking market.
RBS must sell Williams & Glyn, which consists of 307 branches, as a condition of having received state aid during the 2007-09 financial crisis. The Treasury on Thursday asked the Competition and Markets Authority (CMA) to assess what impact the sale would have on the British banking market.
The CMA has no powers to order changes, but the Treasury could ask RBS - which is 80 percent owned by the government - to add more branches or make other changes to make Williams & Glyn a stronger "challenger" bank, industry sources said.
The government wants Williams & Glyn to increase competition, especially for small and medium sized (SME) businesses lending. It will be a separately licensed bank with about 1.4 million retail customers and more than 200,00 SME customers.
The CMA is already investigating competition in UK banking, but the review into Williams & Glyn will be separate and the findings will be reported by July.
The Treasury said the Prudential Regulation Authority would separately assess whether the bank has a viable and sustainable business model.
Williams & Glyn must be sold by the end of 2017. The sale process has been costly and dogged by setbacks, largely related to technology problems. In 2013 RBS sold a 49 percent stake to a consortium of investors, led by U.S. private equity firm Corsair. RBS last month named Jim Brown as chief executive of the business.
"We are working hard and devoting significant resources to establishing Williams & Glyn as a viable, standalone bank that will bring increased competition to the retail market. We continue to focus on achieving the best possible outcome for customers, with an IPO planned for Q4 2016," an RBS spokeswoman said.
A 2013 review on the impact of the sale by Britain's Office of Fair Trading said there was no need to make enhancements to the business.
Editing by Sinead Cruise and Pravin Char