RBS reports worse than expected losses of £1.13bn

The results, however, are an improvement on the previous year when the Edinburgh-based bank recorded losses of 3.6bn.

The group, which is 83 per cent owned by the Government, said it returned to the black in the final three months of 2010, with 12 million in profits.

Analysts had predicted 2010 losses would be reduced to 700m or even 400m, but the results showed the forecasts were over-optimistic.

The poorer performance was attributed to losses on loans in Ireland, which almost doubled to 1.16bn last year.

Experts said the RBS figures showed it was going in the right direction, but a little more slowly than hoped.

On an underlying basis, the bank clawed its way out of the red with operating profits of 1.9bn, compared with losses of 6.1bn in 2009. Bad debts overall were down by about a third from 14bn to 9.3bn.

RBS chief executive Stephen Hester, who has been awarded a 2.04m bonus, described today's results as "solid progress" and claimed the group was ahead of schedule on its original five-year recovery plan.

He said: "Our goals are clear. Today's results show we are stripping away excess risk inherited from the past. We are focusing on serving our customers well and better. We are building enduring strength and value in the new RBS and supporting the economies we serve.

"The opportunity to sell part of the UK Government's shareholding becomes increasingly visible and appealing - a 'win-win' for the taxpayer and RBS."

The bank said its retail and commercial performance had shown strong improvement in 2010, with a six per cent increase in income and an increase in operating profits of 66 per cent.