Royal Bank of Scotland warned yesterday that it would report a "substantial" full year loss as it shifted £38 billion of its riskiest loans into an internally managed "bad bank".

Shares in RBS fell more than 5 per cent after the part-nationalised bank said the restructuring – designed to clean up its balance sheet and position it on the path to reprivatisation – would trigger an impairment charge of between £4 billion and £4.5 billion in the final quarter of the year.

George Osborne, UK chancellor, said the restructuring would make it easier to sell the bank and return money to taxpayers, but the bank was "unlikely'' to be reprivatised before the 2015 general election.

Accelerate divestment
To offset the bank's fresh losses – and boost capital – RBS plans to accelerate the divestment of Citizens, its US arm, by launching an initial public offering in 2014, a year earlier than expected. It plans to sell the business in its entirety by the end of 2016.

That should help it increase its core tier one capital – a key measure of financial strength – to a new target of 12 per cent, it said.

RBS also launched a review of its businesses, IT operations and organisational structure, aimed at improving its focus on customers. It said the results of this review, including plans to sharply reduce its cost base, would be disclosed in February.

It comes as RBS was criticised in a new report published yesterday by Sir Andrew Large, former deputy governor of the Bank of England, in which the bank was heavily criticised for its lending practices to small businesses. – (Copyright The Financial Times Limited 2013)