RBS Chairman Hampton: A New CEO Is Right Thing for Bank

The Chairman of the Royal Bank of Scotland, Sir Philip Hampton has defended the bank's decision to part ways with CEO Stephen Hester and said his departure was not the result of a falling out with finance minister George Osborne.

Hester's departure after five years at the helm is said to be by "mutual agreement", but the move came as a surprise to shareholders and the City of London. RBS shares traded down as much as 8 percent at one point in the morning and one big shareholder told CNBC the decision was "plain stupid."

(Read More: Hester's Departure From RBS Called 'Plain Stupid')

Speaking to CNBC, Hampton said changing CEOs made sense as Hester, who is 52 years old, was unlikely to stay to see the privatization of the taxpayer-owned bank through.

"We hope that the bank will be in a position to be privatized at the back-end of 2014," Hampton said. "By that time, Stephen would have done six years and would really need to re-commit for three maybe even four years and that is what would be customary, which would take him to nine or 10 years which is an awful long time in an extremely challenging job."

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Hampton said having the Treasury as a controlling shareholder added another "dimension" but that Hester was not forced out.

"We had a discussion with the Treasury, as they are a controlling shareholder, on their thoughts and they have a particular interest in getting this business back into the private sector, as do we," Hampton said.

"Stephen has got quite a few years behind him and arguably not so many in front of him," he added.

Both Investec and Deutsche Bank downgraded RBS to "sell" following the news on Thursday, with price targets of 300 pence and 275 pence respectively. RBS shares are currently trading at 305 pence.

Investec said it was a "matter of regret for all RBS' shareholders" that Hester is to depart. Deutsche Bank analysts led by Jason Napier said Hester had done a "terrific job" in restructuring the bank post 2008.