PART-NATIONALISED lender Royal Bank of Scotland today posted a £3.6 billion loss for last year.
The bank, which is 84% taxpayer owned, said the attributable deficit compared with a record £24.3 billion shortfall in 2008.
RBS has faced criticism for its controversial £1.3 billion reward plans for investment bankers and today said its remuneration pot would result in it paying a £208 million bonus tax to the Government.
Chief executive Stephen Hester said the bank had "exceeded all the principal milestones" set for the first year of its turnaround plan.
The payout to investment bankers was given the green light by UK Financial Investments (UKFI), the body set up to manage the Government's stakes in banks.
Mr Hester, who has waived his own payout for last year, had previously said the bank would pay "the minimum we can get away with".
He added today that the group’s core business - the activities that will stay part of the organisation after the restructuring plans - saw profits rise from £4.4 billion in 2008 to £8.3 billion last year.
Bad debt and other impairment charges across the group increased to £13.9 billion from £7.7 billion the previous year.
The bank said there were signs that its level of soured loans could have reached its peak, with the fourth quarter looking less dire for corporate clients.
However it warned the financial circumstances of many consumers and businesses remain fragile and that current economic uncertainty "could expose some customers to further difficulty".
The bank said it is in discussion with the Government about altering its lending commitments to "reflect the economic circumstances" over the next year.
It stressed it was "unambiguously open for business" in its lending to customers, but the strained economic environment had caused many customers to become "nervous about financial matters" and reduce their borrowings.
As part of its bailout terms, the firm agreed to make an extra £25 billion available to customers in loans - £9 billion for mortgages and £16 billion for business lending.
The firm said its was on course to surpass its commitment to lend to householders, with net mortgage lending over the year at £11.8 billion.
Lending to firms was £60.2 billion in 2009, but after loan repayments and overdraft movements saw business lending balances down 8% by the year end.
Mr Hester said 2009 was "a year of substantial progress" for the bank.
"RBS is being restructured and run to serve customers well, to be safe and stable and to restore sustainable shareholder value for all," he said.
"That is our legal duty and it is our intention and desire. It is also the only way taxpayers will recover the support they have given us."
Shadow chancellor George Osborne said ``people will find it very difficult to understand'' how RBS could pay out bonuses in the current circumstances.
"We have just got to look at the whole banking sector and try to bring this pay down. It has got to ridiculous levels," he told BBC Breakfast.
Mr Osborne did not deny that a Conservative government would also have given the green light to the RBS bonuses but added: "I welcome there are no cash bonuses."
He said RBS should not be singled out and he recognised the bank’s argument that important staff would leave if pay was not competitive.
Mr Osborne said "unacceptable" pay levels throughout the sector must be tackled.
Mr Osborne told BBC Radio 4's Today programme: ``I do think the level of payment in the banking sector has got completely out of kilter with the rest of society.
"It is totally disproportionate to what doctors are paid, people working in industry are paid, teachers are paid and the like.
"We need to bring down pay across the sector - not just in one bank, across the sector - and things like a bank tax, internationally agreed, might help do that."
Mr Hester said the level of the bank's rewards pot was set by the board and was not ``imposed upon us from outside'', although he added that ``internal and external pressures'' had been factored into the decision.
He said his decision to waive his own bonus was to try to dampen controversy on the issue.
The bank had to balance public scrutiny on the one hand and the need for staff retention on the other.
"I do believe because of the nature of the tightrope that we are walking we will continue to lose staff," he said.
Mr Hester added that the bank had "overwhelmingly positive" support from the public.
"It is true that, if you like, the level of scrutiny and doubt that goes with that support makes aspects of our job harder," he said.
The loss for the year was below the £5 billion expected by most analysts. Shares rose 5% today as a result.
Mr Hester said this was because of better-than-expected performance from the investment banking division in the last three months of the year, while there was also some improvement in the retail arm of the business.
An additional factor was a £2 billion exceptional non-cash gain from a curtailment in the pension contribution over the last two quarters.
He said the bank’s forecasts were based on interest rates staying low for much of 2010 and a "constructive, cautiously positive" outlook for the world economy.
