The biggest issue holding back RBS' 'challenger bank' IPO is that it still doesn't have a banking licence

The Royal Bank of Scotland just updated the markets with its plight to build up and sell off its own “challenger bank” Williams & Glyn on the stock market by the end of 2017.

The biggest issue holding back the sale is pretty vital — it doesn’t have a banking licence.

“We submitted the banking licence application for Williams & Glyn on 30 September 2015 and are now working with the PRA and FCA towards obtaining the licence and separating the business from RBS,” said the bank in an emailed statement to Business Insider. “We are now planning to separate the business from RBS in Q1 2017 which remains compatible with the end 2017 divestment deadline.

“The strategic attractiveness of Williams & Glyn has been reflected in a number of informal approaches for the business. Therefore whilst continuing preparations for an IPO, we are planning to launch a trade sale process in H1 2016, and targeting the signing of a binding agreement to sell the business by year end 2016, with full divestment by the end of 2017.

Around seven years ago, RBS had to beg the government for a bailout. Over 2008 and 2009 it borrowed £45.4 billion ($70.1 billion), worth 500p per share, from the taxpayer and it has yet to pay it back. The government still owns 81% of RBS.

Under the terms of its deal with the EU, RBS has to hive off W&G, just like it did with its sell-off of a retail unit TSB.

“Separating out the Williams & Glyn business is a complex process, but we remain focused on meeting our State Aid obligation, achieving full divestment by the end of 2017, and reaching the best outcome for shareholders, customers, and staff,” said RBS CEO Ross McEwan in a statement sent to Business Insider.

McEwan has focused the bank on the high street and intends to have a presence in 13 countries rather than the 51 in 2009 since he took over from Stephen Hester in October 2013. Along with a consortium led by private equity firm Corsair Capital, McEwan revealed in in 2013 that RBS would spin off its W&G division.

That was over two years ago and market commentators remarked that the move wasn’t a positive one.

Williams & Glyn has s 1.8 million customers. Once it is ready to be sold off, W&G will be made up of 300 RBS branches in England and Wales and a handful of NatWest branches in Scotland in total.

RBS said today that as at end of the third quarter this year, W&G had net loans and advances to customers of £20 billion and customer deposits of £24 billion.

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