The taxpayer-backed lender was hit with a number of one-off payouts in the final three months of 2012, setting aside an extra £650m for interest-rate hedging products and £450m for PPI redress.

In total the lender has now set aside £700m for the interest rate hedging redress and £2.2bn for PPI.

The bank was also hit with a £390m fine from the FSA and US regulators for LIBOR manipulation in the fourth quarter, which weighed on the bank’s losses.

However, RBS’ core operating profit for 2012 stood at £6.3bn, compared to £6bn in 2011, while its group operating profit was £3.5bn, up on £1.8bn in 2011.

“It (the bank) is much closer now to being in the good financial health that would allow shareholders to receive a dividend and the government to start to sell its stake,” Chairman Philip Hampton said in a statement.

The results were in line with analysts’ expectations, with Investec pricing in an attributable loss of £2.2bn for the final quarter and £5.6bn loss for the entire year.

RBS chief executive Stephen Hester said the bank’s five-year restructuring programme is moving into its final phase.

“RBS is four years into its recovery plan and good progress has been made. We are a much smaller, more focused and stronger bank,” he said.

“Our target is for 2013 to be the last big year of restructuring. There will be important work still to do, but an increasingly sound base from which to work.”

RBS is also weighing up a hybrid sale of more than 300 branches to private equity firms and institutional investors.

The bank is also reportedly considering selling its US retail arm Citizens, a deal which analysts believe could raise more than £8bn for the lender.

The move follows regulatory and Government pressure to strengthen its balance sheet and place greater emphasis on its UK business.

The lender’s shares are currently trading at 344p, notching up a 20% gain over the past year.