Royal Bank of Scotland is to shrink its investment banking and international operations as part of a revamp in which the group could shed up to a quarter of its 120,000 workforce, sources said yesterday.

The part-nationalised bank has given in to demands from politicians that it focus on lending to British households and businesses and maintain only a downsized investment banking business to service corporate clients.

Ross McEwan, who replaced Stephen Hester as chief executive in October, will unveil the outcome of a strategic review of the business alongside the bank's full-year results on Thursday.

Numis analyst Mike Trippitt said the plans were a positive development subject to restructuring costs and the impact on the bank's capital position.

"It has been clear for some time that the government has wanted RBS to retrench to a UK focused retail and commercial bank," he said.

RBS is under pressure to improve its capital position after Moody's placed its credit ratings on review for downgrade last week and Trippitt noted that a quarter of the group's assets, when adjusted for risk, are housed within the investment bank.

The bank said in January it expected to report a core Tier I ratio - a gauge of a bank's financial strength - of between 8.1 and 8.5 per cent at the end of 2013 under full Basel III capital rules, below most rivals.

RBS could reduce its headcount by up to 30,000 as part of the reorganisation, according to the sources who did not want to be quoted directly, a figure that includes previously announced plans to sell its US retail business Citizens, which accounts for 18,300 jobs, and a UK retail business, Williams & Glyn, which employs 4,500.

Finance Minister George Osborne has said he wants RBS to be more like state-backed rival Lloyds Banking Group, which has minimal investment banking operations and concentrates on domestic lending. Lloyds is expected to return fully to private ownership in the next 12 months while RBS is three to five years away.-Reuters