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Report: RBS looking to wind down £1B of loans held by local councils

Royal Bank of Scotland Group PLC is planning to wind down roughly £1 billion in bank loans held by British councils, following criticism from activists that large payments have resulted in the diversion of cash from council services, The Guardian reported.

The state-controlled banking group reportedly aims to complete the process by 2019-end, mainly through loan redemptions and by giving discounts on early repayments as additional incentive in some cases, according to the March 23 report.

The so-called lender option borrower option loans, or lobo loans, have been under criticism over the years, as it allows banks to hike interest rates at certain points over the course of their lifetimes. Critics have estimated that phasing out the loans could save taxpayers £16 billion over the next 40 years, the report added.

In 2017, local peer Barclays PLC converted the lobo loans to fixed-term loans, but it led to only a slight reduction in breakage costs and interest payments were not necessarily affected by the conversion. In January, Barclays was sued by seven local councils over the terms of approximately £573 million in lobo loans, The Guardian reported.