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* Regulator finalises capital requirements for RBS, Lloyds
* RBS, Lloyds say will not need to issue new equity
* Lloyds to raise 500 mln stg from St.James's Place sale
* IMF urges UK to get "clear strategy" on bank stake sales
* Shares in RBS, Lloyds rise over 2 pct
By Matt Scuffham and Steve Slater
LONDON, May 22 (Reuters) - State-backed British lendersLloyds Banking Group and Royal Bank of Scotland have agreed plans to shore up their capital with the financialregulator, removing a barrier to the government offloading itsshares.
The regulator said on Wednesday it had finalised capitalrequirements for the two banks and the lenders had submittedtheir plans. Both banks said they did not need to issue newequity and could raise the necessary capital by selling assetsand through their restructurings, which are already under way.
Lloyds moved quickly to plug part of its shortfall byraising about 500 million pounds ($752 million) from the sale ofmore of its stake in UK wealth manager St.James's Place.
The banks need to show they are robust enough to return toprivate ownership after Britain pumped in a combined 66 billionpounds ($100 billion) to rescue them during the 2008 financialcrisis. Both have since undertaken major overhauls under newmanagement, involving asset sales and job cuts.
The International Monetary Fund told Britain on Wednesday to get a "clear strategy" on returning its Lloyds and RBS stakesto private ownership and Finance Minister George Osborne said heagreed, in one of his clearest statements of intent yet ongetting the banks off the government's books.
"Having refocused their business, now is the time for aclear strategy on how to return RBS and Lloyds to the privatesector in a way that protects value for the taxpayer," he said.
Osborne indicated he would await the final recommendationsof the Parliamentary Commission on Banking Standards, due to bemade next month, before formulating plans.
Speculation that a sale of Lloyds shares may be imminent hasrisen in recent weeks after the bank's shares passed the 61.2pence level which the government regards as break-even on its20.5 billion pound investment.
A sale of shares in RBS would appear to be further away withtaxpayers still sitting on a loss of over 5 billion poundsfollowing the bank's 45.8 billion bailout. However, thegovernment may consider other options such as a mass sharedistribution to the public.
The Bank of England said in March that Britain's banks mustraise 25 billion pounds of extra capital by the end of the yearto absorb any future losses on loans and said the PrudentialRegulation Authority (PRA) would give banks specific guidance ontheir capital position by the end of May.
Industry sources and analysts had identified Lloyds and RBSas most likely to need extra capital. Lloyds was seen facing ashortfall of up to 5 billion pounds and RBS as much as threetimes that amount.
Neither the banks nor the PRA would confirm how much extracapital the banks needed. Shares in Lloyds closed up 2.3 percentat 63p and RBS gained 2.2 percent to 349.6p.
STILL SLIMMING
Lloyds, which is 39 percent-owned by the taxpayer, said itwould not need to issue new equity or so-called contingentcapital, which can convert into equity if a bank hits trouble.
It said after the market close it will sell 77 millionshares in St.James's Place, or a 15 percent stake in the firm,which will cut its holding to 21 percent. It cannot sell thoseshares for 180 days.
The sale will increase its common equity Tier 1 capital byabout 500 million pounds and add 0.16 percentage points to itscore capital adequacy ratio. The ratio was 8.1 percent at theend of March under full Basel III rules and the bank said thatshould rise to above 9 percent this year.
Lloyds, which was informed of the PRA's conclusions byletter this week, has also hired advisers for the possible saleof its Scottish Widows asset management arm, and said capitalwill also be built by cash generated by its core business.
RBS, which is 81 percent-owned by taxpayers, has more to do.
The bank said it expected to improve its capital positionand meet regulatory requirements through its current businessplan. But it warned it would not be able to implement all of themeasures this year.
RBS is reducing the size of its investment bank, sellingnon-core assets and plans to sell 20-25 percent of U.S. armCitizens in the next two years through a stock market flotationin New York.
The PRA said it would release more information when it hadconcluded discussions with all banks. The other major UK banksare not expected to need capital and all generate significantprofits. HSBC and Standard Chartered areregarded as among the best capitalised banks in the world andBarclays and Santander UK have said they arecomfortable with their strength.
Britain's biggest customer-owned financial services groupNationwide said on Wednesday it planned to raise a "few hundredmillion" pounds in the next year to bolster its capital throughthe issue of new loss-absorbing debt.
