The chief executive, who took over at the part-nationalised bank five years ago, said the privatisation process should be led by a CEO “at the start of their journey”.
Hester (pictured) will step down in December 2013, having joined the board at the height of the financial crisis in October 2008 and becoming group chief executive the following month.
RBS chair Philip Hampton is to begin the search for a successor with immediate effect.
“RBS has made huge progress in becoming a strong bank, with balance sheet and funding transformed and the business fundamentally reshaped. It is now beginning to prepare for possible share sales by the UK government,” the bank said in a statement.
The RBS board said Hester was “unable to make…an open-ended commitment following five years in the job already.”
Hester said: “We are now in a position where the government can begin to prepare for privatising RBS. While leading that process would be the end of an incredible chapter for me, ideally for the company it should be led by someone at the beginning of their journey.”
The CEO will not receive a bonus for 2013, but will receive payment in lieu of notice of £1.6m – equivalent to 12 months’ pay and benefits – at the time of his departure.
