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* McEwan vows to increase lending to support UK economy
* He has run RBS's retail business for past year
* New boss may create internal "bad bank"
By Matt Scuffham
LONDON, Oct 1 (Reuters) - Royal Bank of Scotland's new chief executive, Ross McEwan, took up his role on Tuesdaywith Britain's finance ministry close to deciding whether tomake the part-nationalised lender break itself up.
The ministry is considering forcing RBS to hive off itsproblem loans into a separate legal entity, in a move designedto leave the rest of the bank better placed to lend. It isexpected to make a decision this month, according to governmentsources.
Britain's government and central bank are concerned thatpoor access to finance, particularly for smaller firms, maythwart a sustainable recovery from the country's worst slump indecades.
RBS is 81 percent owned by taxpayers after a 45.5 billionpound ($73.7 billion) bailout in 2008. McEwan must satisfylawmakers who want the bank to slim down and focus on lending tohouseholds and businesses.
McEwan said on Tuesday that RBS would support economicgrowth in Britain. "A strong bank needs a strong home market,and the UK is ours," he told 300 staff at RBS's London offices.
"I want RBS to stand firmly behind its customers with theexplicit goal of helping them succeed. That includes an increasein our lending," he said.
Banking industry and political sources say the new CEO coulddecide to create an internal "bad bank" to house RBS's problemloans, even if a break-up is not recommended.
The sources say he may do this by enlarging and revampingRBS's existing non-core portfolio, putting assets from thegroup's Irish business, Ulster Bank, and British commercial realestate loans inside it.
RBS and the Treasury declined to comment.
New Zealander McEwan, 56, has worked in retail banking formore than a decade. He has run RBS's retail banking business forthe past year after joining from Commonwealth Bank of Australia.
He was seen as a safe, politically acceptable choice whowould increase the bank's focus on retail and commercialbanking.
"Ross is a customer banker through and through and isdetermined to transform the bank into a real asset for the UKeconomy," RBS's Chairman Philip Hampton, who oversaw hisappointment, said on Tuesday.
McEwan succeeds Stephen Hester, who presided over a mammothrestructuring of RBS during his four-year tenure but was oustedin June with the government wanting fresh leadership to preparethe bank for an eventual sale of its stake.
The government wants RBS to be less complex and more likeits part-nationalised rival Lloyds Banking Group, whichis heavily focused on domestic lending.
Lloyds, which was rescued via a 20.5 billion pound bailoutin 2008, has returned to health more quickly and the governmentbegan selling its shares in the bank earlier in September.
