RBS defends bonus pot as it sinks to £3.6bn loss

The bank, which is 84 per cent 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 eight per cent 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."