ROYAL Bank of Scotland declined to comment last night on continuing reports it is under pressure to sell off its Citizens Bank business in the US, as analysts warned that the part-nationalised bank is still a long way from full recovery.

RBS took a big step towards a return to the private sector with its exit from the Government's Asset Protection Scheme last week and chairman Sir Philip Hampton predicted the Government will start selling down its 82% stake before the next election.

City experts have warned it faces pressure to up its capital cushion and analysts at Investec yesterday downgraded their recommendation on the stock.

Edinburgh-based RBS is reported to have received a letter from the Financial Services Authority advising it that selling Citizens and radically reducing the size of its investment bank may boost its capital position.

However, RBS is likely to resist any sale because chief executive Stephen Hester has identified Citizens as part of the core business of RBS he wants to retain.

Pressure to raise capital levels is problematic for RBS and fellow part-nationalised institution Lloyds Banking Group as analysts feel they have little chance of generating retained profits in the short term.

Both face losses in parts of their business, compensation costs for the mis-selling of payment protection insurance and interest rate swaps as well as potential penalties for manipulation of the London Interbank Offered Rate.

Investec analyst Ian Gordon downgraded his stance on RBS from "hold" to "sell".