The shock figures were released as part of RBS’ annual report; they indicate that much of the loss is attributable to a write-down of the value of Citizens (RBS’ US business), fine payments for rigging the foreign exchange market and compensation for customers mis-sold PPI.

The results nevertheless represent a significant improvement over the £9bn loss reported last year, and its operating profits (also £3.5bn) are the highest attained by the bank since 2010. However, it is the seventh consecutive annual loss made by the taxpayer-owned bank.

In a supplementary statement issued after the release of the report, RBS declared its intention to drastically reduce investment banking operations both nationally and abroad; the bank will pull out of around 25 countries the world over to focus on retail and commercial activities. It was also confirmed that Sir Howard Davies, former head of the now-defunct Financial Services Authority, will be appointed as RBS’ new chairman.

Chief executive Ross McEwan yesterday announced that he would not be taking his £1million ‘role-based allowance’ this year, a provision introduced by many banks to circumvent the EU banker’s bonus cap. The bank’s bonus pool was slashed by over a fifth (21 per cent) last year, and McEwan stated that the public were “quite right” to view the lavish bonuses enjoyed by staff previously as “outrageous”.

Richard Hunter, head of equities at Hargreaves Lansdown, said that the results pointed to both progress and the continuing legacy of past failings. “The gargantuan task which RBS faced after the financial crisis is still showing its effects, but the bank continues to reshape and reform,’ Hunter said.

“There’s little doubt RBS is making progress. Even so, with the finished product still some way off and no dividend to encourage investment in the meantime, the general consensus of the shares as a sell is likely to remain intact for now.”