LONDON  - NatWest said on Friday it had agreed to buy back 1.1 billion pounds ($1.53 billion) of shares from the British government.

The off-market deal for 590.7 million shares will settle on March 23, the bank said in a statement.

NatWest - formerly Royal Bank of Scotland - remains 62% taxpayer-owned as a legacy of its state bailout in the 2007-09 financial crisis.

The government, which has managed just two major sales of state-owned stock to date, said earlier this month that it was targeting returning the bank to full private ownership in 2026.  

Following the deal announced Friday, the British government's shareholding of NatWest will fall to around 59.8%.

NatWest added it will also contribute 500 million pounds to its main pension scheme as a result of the share purchase.

Combined, the stock sale and pension increase will reduce NatWest's tier one capital ratio by 72 basis points, and see around a 1 pence increase in tangible equity per share. ($1 = 0.7184 pounds)

(Reporting by Tom Wilson Editing by Rachel Armstrong) ((T.Wilson@thomsonreuters.com; (44) 20 7513 5676; Reuters Messaging: t.wilson.thomsonreuters.com@reuters.net))