Royal Bank of Scotland (RBS) confirmed today that losses for the full-year could reach as much as £28 billion but pledged to increase lending to customers as part of the Government's second bailout of Britain's struggling financial sector.

The bank said this morning that it will make an annual loss of between £7 billion and £8 billion, when it announces its results on February 26.

However, it also expects to announce a charge of between £15 billion and £20 billion related to last year's acquisition of ABN Amro, the Dutch bank, which it acquired with Spain's Santander and Fortis, the Belgium bank.

The potential £28 billion loss is nearly twice the size of Vodafone's £15 billion deficit in 2006, currently the biggest-ever corporate loss in UK history.

The £20 billion charge will not impact the bank's tier one capital, which is a core measure of a lender's strength.

Under new measures announced today, in conjunction with the Government's second bailout of the British banking sector, RBS' tier one capital is expected to rise by just under 1 per cent to between 6.9 per cent and 7 per cent.

RBS said today that it will increase its lending to customers across its business by £6 billion after confirming plans to convert its preference shares into ordinary shares, which will give the bank an additional £5 billion in capital and save £600 million in costs.

While RBS will offer the new shares to investors, it is widely expected that the Government will buy up the new equity to increase its, and therefore the taxpayers', stake in the bank from 58 per cent to 70 per cent.

Last October, the Government sank £37 billion into UK banks, to stabilise the most vulnerable lenders, with RBS taking £20 billion to shore up its balance sheet. Since then, however, the economy has continued to deteriorate.

Stephen Hester, who took over as chief executive at RBS from Sir Fred Goodwin last year: "The dislocation of credit markets and the global economic downturn continue to hit RBS hard, as with many other banks.

"We are making progress in recognising excess risk and dealing with it. Significant uncertainties and risks inevitably remain. In this context, the support we are receiving from Government benefits all our stakeholders and enables us to provide more customer support in return."

Mr Hester said in a conference call that RBS losses were unlikely to end with its latest round of write-downs.

He said: “The world remains an uncertain place. We can all be sure there will be future significant credit losses but we can’t be sure of what amount and what timing…all banks are facing uncertainties.”

Asked if he felt sorry for RBS’ shareholders, who have seen their ownership diluted to almost nothing, Mr Hester said: “Of course, and by the way, I am one of them.”

Last week, RBS confirmed that Sir Philip Hampton, currently chairman at J Sainsbury, will become chairman at the bank to replace Sir Tom McKillop who is set to retire in April. Sir Philip will join today as chairman designate.

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