State-backed lender Royal Bank of Scotland confirmed on Wednesday it would exit the government's Asset Protection Scheme this week, after paying required premiums and reducing assets by 63 percent to around 105 billion pounds.

RBS has paid around 2.5 billion pounds to participate in the specially designed insurance scheme that capped potential losses on almost 300 billion pounds of its most toxic assets after its bailout in 2008.

The bank also paid around 1.5 billion pounds to the Treasury for liquidity support.

The Financial Services Authority has approved RBS's decision to withdraw from the scheme on Thursday but the bank will continue to discuss its capital plans and preparations to meet Basel III demands with the regulator.

(Reporting by Sinead Cruise, editing by Raji Menon)