Lloyds CEO says return to private ownership is in sight

* Says 'dribble-out' plan has proved a "smart move"

* Plan allows Morgan Stanley (Xetra: 885836 - news) to sell shares in open market

* Schroders (LSE: SDR.L - news) analyst says plan to sell RBS (LSE: RBS.L - news) at loss 'sensible'

* Lloyds chief calls for banks to accept ringfencing (Adds comment from Schroders analyst on RBS disposal process)

By Matt Scuffham

LONDON, June 18 (Reuters) - Lloyds Banking Group Chief Executive Antonio Horta-Osorio said a return of the company to full private ownership was "within sight" and praised a plan that allowed the government to sell shares in the open market.

The government has reduced its stake in the bank, bailed out during the 2007-9 financial crisis, to 18 percent from 43 percent. The rate of its sell-down accelerated this year after Morgan Stanley was mandated to sell shares through a trading plan known as a "dribble-out".

"I personally think that the dribble-out was a really smart thing to do because it enabled the government to sell without any concerns about inside information," Horta-Osorio told the British Bankers Association's (BBA) annual retail conference on Thursday.

"It's just a blind programme where they sell 15 percent, on average, of daily (trading) volumes and they have increased the number of shares sold at higher prices without discounts," he said.

Britain spent a combined 66 billion pounds ($105 billion) of taxpayers' money rescuing Lloyds and Royal Bank of Scotland during the crisis and Finance Minister George Osborne is keen to sell its shares in the banks as soon as possible.

Shares (Berlin: DI6.BE - news) in Lloyds are currently trading comfortably above the price which the government paid for them, enabling it to make a profit on the shares.

In contrast, the government has said it is ready to start selling shares in RBS at a loss in order to get liquidity into the stock and potentially boost its value for later sales.

Speaking at the BBA conference, Justin Bisseker, banking analyst at Schroders - which is one of the biggest three shareholders in RBS - said the government was sensible not to hold on to the shares indefinitely.

"Looking forward, RBS will be an extremely well-capitalised bank and I think that process of sell-down will increase liquidity in the shares," he added.

Osborne said in his annual speech to financiers last week that the government would start selling RBS shares in the coming months.

Reuters reported earlier in June that the government was considering a first sale of RBS shares in September and a full exit from Lloyds next March.

Horta-Osorio also told the conference that British banks should accept new rules designed to protect their domestic retail customers from riskier parts of their operations.

($1 = 0.6287 pounds)

(Editing by Carolyn Cohn and Pravin Char)