(Reuters) - Royal Bank of Scotland (RBS) will drastically shrink its investment banking operations, pulling out of 25 countries across Europe, Asia and the Middle East as the state-controlled lender accelerates its refocus on local lending in Britain.

RBS said on Thursday it would cut its the stock of assets held at its corporate and institutional banking (CIB), which houses the investment banking division, by 60 percent in five years as Chief Executive Ross McEwan seeks to return the bailed out banks to profit.

Rory Cullinan, RBS's restructuring chief, will be in charge of withdrawing the investment bank from central and eastern Europe, Africa, the Middle East and large parts of Asia after being appointed chairman of CIB, replacing Donald Workman.

Workman has been appointed executive chairman of RBS's private banking franchise, Coutts.

RBS reported a 2014 loss of 3.5 billion pounds ($5.4 billion), hit by a writedown on the value of its U.S. business. Citizens and new charges relating to foreign exchange investigations and mis-selling.

The loss compared with an attributable loss of 9 billion pounds the previous year. The bank said it had sold a $36.5 billion North American loan portfolio to Japan's Mizuho Financial Group.

RBS also confirmed the appointment of ex-financial regulator Howard Davies as its new chairman.