RBS CEO says banks need culture change to regain trust

* Banks haven't been good servants to customers - Hester

* Banks must address root cause of symptoms - Hester

* RBS has 15 months of 'heavy lifting' to do - Hester

* RBS 'poster child for what went wrong in banking' - Hester

By Matt Scuffham

LONDON, Oct 1 (Reuters) - Banks must change their culture to focus on the needs of customers to restore trust in the industry, Stephen Hester, chief executive of part-nationalised Royal Bank of Scotland , said on Monday.

In a speech at the London School of Economics, Hester said he believed the finance industry's problems had arisen from banks losing sight of their role to serve customers.

Britain's banks have been rocked by a series of scandals including interest rate rigging, breaches of anti-money laundering requirements and the mis-selling of loan insurance and complicated interest rate hedging products.

"It is possible to look at the many scandals that have hit banking in recent years and see them as individual episodes of bad judgment or wrong behaviours," Hester said.

"In fact, I think it's more accurate to say that most of them are related to one big scandal: banks have simply not been good enough servants of their customers in the recent past."

Hester said the banking industry needed to do more than just treat the symptoms.

"We cannot afford to just fix Libor, to just fix money laundering controls, or to just fix the way we market our products. We have to address the root cause of the industry's failings," he said.

RBS is 82 percent owned by the UK government following a 45 billion pound bailout in the financial crisis in 2008. It is under investigation for its role in a scandal over Libor (the London Interbank Offered Rate) and faces punishment over possible breaches of sanctions against Iran.

The bank has also set aside 1.3 billion pounds ($2.10 billion) to compensate customers mis-sold Payment Protection Insurance (PPI) and faces claims over interest rate swap mis-selling.

"The bank is a British poster child for what went wrong in banking and to fix it we are engaged in probably the largest and most far-reaching company restructuring ever," he said.

Hester said RBS should have largely completed its restructuring by the end of 2013 but had "about 15 months of heavy lifting still to do."

Since joining RBS as chief executive following the bailout, Hester has overseen a 700 billion pound reduction in the bank's balance sheet to bolster its financial strength and cut back on risk.

Hester said the bank was "out of the mire but not yet out of the woods."

RBS shares closed up 3.7 percent at 266.47 pence on Monday, meaning UK taxpayers are currently sitting on a paper loss of 21 billion pounds.

($1 = 0.6192 British pounds)

(Reporting by Matt Scuffham. Editing by Jane Merriman)


Messaging: matthew.scuffham.reuters.com@reuters.net))

Keywords: RBS HESTER/