Operating loss narrowed to GBP6.2bn from GBP6.9bn in 2008, with loss before tax falling to GBP1.9bn from GBP8.3bn.

Excluding movements in the fair value of own debt, group operating profit before impairment losses improved to GBP7.8bn, compared with an operating loss of GBP7.38bn in 2008.

Pre-impairment profit, adjusted for fair value of own debt, improved to GBP7.8bn from a loss of GBP0.7bn. Core bank operating profit improved to GBP8.3bn, compared with GBP4.4bn in 2008.

Pre-impairment profits in the core retail and commercial banking businesses remained robust with margins improving in the second half, but impairments increased markedly from the previous year.

US retail and commercial recorded an operating loss, but has successfully refocused on its core customer franchises, with an improvement in margins and stable impairments in the second half. RBS Insurance operating profit was severely affected by rising bodily injury claims.

Non-core achieved a reduction of GBP57bn in third party assets, excluding derivatives, ahead of its announced targets, by running down exposures and pursuing opportunities to dispose of loan portfolios. Losses on trading activities declined as underlying asset prices rallied, but impairment losses increased to GBP9.22bn.

Risk in the balance sheet has been reduced, with total assets cut by GBP696bn in 2009. Core Tier 1 capital ratio improved to 11%, following the issue of B shares to the UK government and accession to the Asset Protection Scheme. Risk-weighted assets at year-end were GBP438bn.

Stephen Hester, CEO, said: “We are one year into our five-year turnaround plan and have taken significant steps along the path to recovery. The strengths of our core business are becoming clearer, while the legacy of losses and exposures from the crisis is running off. RBS is being restructured and run to serve customers well, to be safe and stable and to restore sustainable shareholder value for all. 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.

“We have exceeded all the principal milestones we set for the first year of our plan. An GBP8.3bn profit for 2009 in our core businesses provides evidence that the new RBS can deliver sustainable earnings. RBS is also becoming safer and smaller more quickly than we expected. We have already completed 70% of our planned balance sheet reduction. Most importantly, our customer base remains loyal as we implement the changes to our business.

“In 2010, we will continue to focus on the recovery factors we can control, while effectively navigating the factors we cannot. The case for investment in our Group will become simpler and clearer as our strategy and actions show continuing results.”