RBS on 'path to recover' as it pays off bail-out loans

The bank said the first-quarter pre-tax loss, compared to a £116m loss in the same period last year, was struck after a £2.5bn charge against the value of its own debt.

Stephen Hester, chief executive of RBS, said the results could be taken "anyway you want" as he insisted the bank was "defusing the problems from the past" and would soon be able to restart dividend payments on some of its hybrid bonds, though he admitted that restarting dividends on ordinary shares was more than a year away.

Despite this, Mr Hester hailed the lender's achievement of what he said were "important milestones" as he confirmed the bank had repaid more than £100bn in government and central bank funding and was close to ending its need for any taxpayer support.

“We are happy with progress in the first quarter though the economic and regulatory backdrop remains tough. RBS continues, markedly, to regain strength and resilience. Our focus is on improving the future for customers and our business whilst ensuring that the bank’s past issues are dealt with," Mr Hester said.

UK retail banking was one of the bank's stronger performers with operating profits of £477m, up 4pc quarter on quarter, while UK corporate banking profits came in a £492m, up 21pc quarter on quarter, after the division avoided further large write-offs against souring loans.

The bank's markets business, which houses its trading operations, produced a "strong" results on the back of its foreign exchanges and rates trading business.

RBS, which is 82pc state-owned following a £45bn taxpayer bailout, said that next week it would pay back the last of the £163bn of bail-out loans it received from the UK and US taxpayers.

The lender received £75bn from the Treasury’s credit guarantee scheme and the Bank of England’s special liquidity scheme. It was also handed £36.6bn in emergency liquidity assistance from the Bank and about $84.5bn (£52.2bn) from the US Federal Reserve.

The bank said it had paid the Treasury more than £1.5bn in fees to use the credit guarantee scheme.

RBS also set aside an extra £125m to cover compensation for mis-sold payment protection insurance (PPI) policies. It has already made provisions of £850m to pay for claims.

RBS shares rose 3pc to 25.36pc in early trading.

Shares in the bank have risen by almost 20pc so far this year and analysts at Credit Suisse have suggested speculation around the timing of the Government’s exit from the company could support further growth.

“We see speculation around a partial sale disposal to Middle East Investors as the main near-term catalyst for the shares,” they said in a note.

However, Mr Hester said on a conference call on Friday: "As far as I am aware there is no desire to sell at current share prices and I find that entirely understandable.

"While everyone is focused on that being the desired end game, I'm not aware of anything that's imminent."

Direct Line Group, the bank's insurance business, increased operating profits by 25pc to £84m. RBS aims to sell a minority stake in Direct Line through an initial public offering in the second half of 2012, followed by another sale in 2013, which will take its holding to below 50pc. As well as Direct Line, the division's famous brands include Churchill and Green Flag.

Allegations that RBS, as well as other major British banks, mis-sold interest hedging products was described by Mr Hester as not being a "major issue", though like Bob Diamond, chief executive of Barclays, he admitted there could have been "mistakes". Martin Wheatly, the head of the Financial Conduct Authority, has warned the banks the regulator was prepared to get tougher on the issue.