Royal Bank of Scotland (RBS) has agreed to pay $4.9bn as fine to settle an ongoing probe into its sale of mortgage-backed securities in the US.

The bank reached a civil settlement in principle with the US Department of Justice (DOJ) which was investigating RBS’s issuance of US residential mortgage-backed securities between 2005 and 2007.

As part of the proposed settlement process, $3.46bn will be covered by existing provisions while the remaining $1.44bn will be paid from second quarter earnings.

The settlement is subject to signing of the legal-binding agreement between DOJ and the bank.

RBS CEO Ross McEwan said: “Today’s announcement is a milestone moment for the bank. Reaching this settlement in principle with the US Department of Justice will, when finalised, allow us to deal with this significant remaining legacy issue and is the price we have to pay for the global ambitions pursued by this bank before the crisis.

“Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer.”

The agreement is expected to help the bank to settle blocked dividends to shareholders as well as facilitate the UK government’s plan to divest its more than 70% stake in RBS, according to Reuters.

RBS was significantly affected during the financial crisis of 2007-08 and was saved from insolvency following a £45bn bailout by the UK government.

In November last year, the government started the process to sell its stake in this banking entity.