RBS's new CEO takes reins with break-up decision looming
* McEwan vows to increase lending to support UK economy
* He has run RBS's retail business for past year
* New boss may create internal "bad bank"
LONDON, Oct 1 (Reuters) - Royal Bank of Scotland's new chief executive, Ross McEwan, took up his role on Tuesday with Britain's finance ministry close to deciding whether to make the part-nationalised lender break itself up.
The ministry is considering forcing RBS to hive off its problem loans into a separate legal entity, in a move designed to leave the rest of the bank better placed to lend. It is expected to make a decision this month, according to government sources.
Britain's government and central bank are concerned that poor access to finance, particularly for smaller firms, may thwart a sustainable recovery from the country's worst slump in decades.
RBS is 81 percent owned by taxpayers after a 45.5 billion pound ($73.7 billion) bailout in 2008. McEwan must satisfy lawmakers who want the bank to slim down and focus on lending to households and businesses.
McEwan said on Tuesday that RBS would support economic growth in Britain. "A strong bank needs a strong home market, and the UK is ours," he told 300 staff at RBS's London offices.
"I want RBS to stand firmly behind its customers with the explicit goal of helping them succeed. That includes an increase in our lending," he said.
Banking industry and political sources say the new CEO could decide to create an internal "bad bank" to house RBS's problem loans, even if a break-up is not recommended.
The sources say he may do this by enlarging and revamping RBS's existing non-core portfolio, putting assets from the group's Irish business, Ulster Bank, and British commercial real estate loans inside it.
RBS and the Treasury declined to comment.
New Zealander McEwan, 56, has worked in retail banking for more than a decade. He has run RBS's retail banking business for the past year after joining from Commonwealth Bank of Australia .
He was seen as a safe, politically acceptable choice who would increase the bank's focus on retail and commercial banking.
"Ross is a customer banker through and through and is determined to transform the bank into a real asset for the UK economy," RBS's Chairman Philip Hampton, who oversaw his appointment, said on Tuesday.
McEwan succeeds Stephen Hester, who presided over a mammoth restructuring of RBS during his four-year tenure but was ousted in June with the government wanting fresh leadership to prepare the bank for an eventual sale of its stake.
The government wants RBS to be less complex and more like its part-nationalised rival Lloyds Banking Group, which is heavily focused on domestic lending.
Lloyds, which was rescued via a 20.5 billion pound bailout in 2008, has returned to health more quickly and the government began selling its shares in the bank earlier in September.