The bank, now 84% owned by the taxpayer, saw its losses narrow from the £24bn reported in 2008 at the height of the financial crisis.
RBS has suffered in the last two years from its aggressive lending and expansion policies in the previous decade and turned to the Government for funds in 2008 when the financial crisis saw the group’s bad debts rack up.
Its marketing strategy came under fire when it renewed its sponsorship of Rugby Union’s Six Nations championship amid the worst of the credit crunch.
In a letter to the bank’s shareholders, group chief executive Stephen Hester, says the level of bad debt “may have peaked” and the outlook for 2010 is “cautiously encouraging” despite the “hard slog” that lies ahead.
Despite the losses, the bank’s UK retail division, which includes the RBS, Ulster and Natwest operations, grew its business, adding 360,000 current account customers and 80,000 mortgage accounts in 2009.
RBS is to sell 318 branches and its RBS Insurance portfolio, which includes the Direct Line, Churchill and Privilege brands, after a European Commission report into state aid last year.
The group is expected to announce it will pay bonuses of £1.3bn to its staff, a move which is sure to attract criticism from consumer groups.