Pedestrians are reflected in the window of a branch of the Royal Bank of Scotland in London. Picture: Suzanne Plunkett

State-backed Royal Bank of Scotland is shuttering a distressed-debt unit as it continues to shrink its investment bank, Bloomberg reported, citing three people familiar with the matter.

However, an RBS spokeswoman told Reuters that the lender was merely scaling back the division, not shutting it down.

“We are materially reducing our special situations desk,” the spokeswoman said, adding that RBS had already announced as much in May.

Distressed debt involves the purchase of the debt of companies in or near bankruptcy at a deep discount.

RBS has been shrinking its investment banking and international operations, giving in to demands from politicians that it focus on lending to British households and businesses, sources told Reuters in February. - Reuters