The Dividend Access Share was issued in 2009 when the government paid £25.5 billion to bail out the bank.
However dividends for ordinary shareholders are still some way off, according to industry insiders, who expect this to begin in 2017 at the earliest.
72.6% of RBS is still owned by taxpayers, down from 84% during the financial crisis.
Ross McEwan, RBS Chief Executive, said:
“On the back of progress we have made in strengthening the bank's balance sheet in recent years, I am pleased that we are today able to repay the UK Government £1.193 billion to finally retire the Dividend Access Share.
This is another important milestone in our plan to resume capital distributions to our shareholders, and represents one less hurdle in our path to build the number one bank for customer service, trust and advocacy."
Laith Khalaf, Senior Analyst at Hargreaves Lansdown, commented:
"Today’s payment to the Treasury represents a step in the rehabilitation of RBS into a normal bank, but there’s still an awfully long way to go.
"Dividends have been pushed back until the full extent of US conduct costs is out in the open, and the share price is still languishing well below what the government paid for the bank, which means it’s going to be some considerable time before the bank is weaned off taxpayer support.
"RBS is heading in the same direction as Lloyds and will probably get there in the end, but it’s going to be a long haul. The risk for shareholders is that while the bank is still getting to its feet, the economy takes a nosedive and knocks it back to square one."
