RBS Royal Bank of Scotland Group PLC

LONDON—The U.K. government Friday announced it will re-start the privatization of Lloyds Banking Group PLC by drip selling shares into the market.

The British Treasury, which owns a 9.1% stake in Lloyds following a bailout in 2009, said in a statement that it had ditched a plan to sell its stake via a retail offering to members of the public. Instead Morgan Stanley will be appointed to slowly sell the shares over the next 12 months.

"I have listened to the experts. Ongoing market volatility means it is not the right time for a retail offer," U.K. Chancellor Philip Hammond said in a statement.

Unlike a previous plan to sell down the stake, Mr. Hammond didn't pledge to sell the shares above the price the government paid for them. Lloyds shares currently trade at 53 pence, well below the average 73 pence buy in price paid by British taxpayers. Following the June Brexit vote, Lloyds's shares lost a quarter of their value, raising questions whether the Treasury would exit the bank soon.

So far the Treasury has recouped around GPB 16.9 billion from previous Lloyds share sales. British taxpayers pumped just over GBP20 billion into the lender to save it from collapse during the financial crisis. In statement Lloyds welcomed the Treasury's decision.

More complex is the prospect of returning part of the GBP45.5 billion that was pumped into Royal Bank of Scotland Group PLC during the crisis. On Friday Mr. Hammond dismissed the idea of a quick sale of its 73% stake in RBS. "It is clear that disposal of the RBS shares at a price that recovers taxpayers investment is not practical at the moment," he said during a visit to the U.S. The bank will first have to settle allegations around the sale of toxic mortgage backed securities with the Justice Department and then dispose of its Williams & Glyn retail unit before any privatization proceeds, Mr. Hammond added.

Write to Max Colchester at max.colchester@wsj.com and Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

October 07, 2016 11:15 ET (15:15 GMT)

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