Royal Bank of Scotland has said it expects to beat expectations for the second consecutive quarter as the government-controlled bank's recovery gathers pace thanks to an economic rebound in the UK and Ireland.

RBS said that improved economic activity and rising property prices – particularly in Ireland – were expected to produce a positive £800 million net release of impairments in its results for the three months to September when they are published on October 31st.

That would be only the second time in five years that RBS has enjoyed a positive contribution from writing back provisions for bad loans. The last time was the previous quarter, when it booked a gain of £93 million due write-backs on impairments.

RBS said it expected to “significantly outperform” its previous guidance of about £1 billion total impairments for this year.

The 81 per cent government-owned lender is in the midst of a restructuring plan aimed at refocusing the group on its core UK retail and corporate lending franchise, as it seeks to turn itself round six years after being bailed out.

The bank said RBS Capital Resolution unit – the bad bank set up last year to house toxic assets from its balance sheet – would generate £500 million of net impairment provision releases.

It added that Ulster Bank would record net provision releases of about £300 million.

“Rising Irish residential property prices combined with proactive debt management has resulted in lower arrears in Ulster,” it said, adding: “The potential exists for further releases in future, if market conditions continue to improve.”

However, RBS warned that revenues in its corporate and investment banking division have been weaker than anticipated in the third quarter.

It also warned: “Previously disclosed uncertainties remain, particularly relating to conduct and litigation matters.” – Copyright The Financial Times Limited 2014