Royal Bank of Scotland Group missed analyst estimates as losses from its Irish business climbed and profit from investment banking shrank.
Loan losses at Ulster Bank almost doubled, rising by £512 million year on year to £1.16 billion. The bank blamed the rise on higher latent provisions recorded on the mortgage and property portfolios.
In the final quarter of the year, the bank took impairments of £375 million on its core operations, up from £286 million in the third quarter.
However, the Irish unit has managed to trim costs over the year, with a restructuring plan and cost reduction programme yielding a 24 per cent decrease in total expenses from 2009 levels.
The group noted that Ulster Bank was facing a "challenging" economic environment.
"Ulster Bank performance should improve somewhat in H2 2011, although we remain cautious on the economic outlook in Ireland," RBS said in a statement.
Despite a group operating profit of £1.9 billion, RBS, which is owned by the British government, recorded a net loss of £1.1 billion for the year compared with a loss of £3.6 billion in 2009. Analysts had expected a loss of £406.5 million.
Operating profit at the investment bank led by John Hourican was £3.5 billion compared with £5.7 billion, while the unit's revenue fell to £7.9 billion, from £11.1 billion a year earlier.
Barclays, a UK-based rival, this month said 2010 pretax profit almost doubled at its investment banking unit, even as
revenue dropped 25 per cent to £13.33 billion.
"Two years on from the global financial crisis, RBS's recovery is ahead of schedule," chief executive Stephen Hester said in the statement. "We have much work still to do and there are significant obstacles still to overcome."
Mr Hester last February forecast the bank would return to profit in 2011 after three years of losses. The bank, which received a £45.5 billion rescue from the British taxpayer, the biggest in the world, has cut about 27,000 jobs and disposed of more than £100 billion of assets since Mr Hester replaced Fred Goodwin during the financial crisis of November 2008.
Overall bad loan provisions fell to £9.3 billion from £13.9 billion, the bank said. That met analyst estimates.
RBS also took a £1.1 billion after tax charge for its use of the Asset Protection Scheme, a government-backed insurance program for toxic debt. The bank had £205 billion of risky assets insured by the government under the Asset Protection Scheme at the end of the third quarter.
Operating profit at RBS's UK consumer bank rose almost sixfold to £1.37 billion compared with £229 million in 2009, the bank said.
Mr Hester will take his first bonus since joining the bank, accepting a £2 million all-stock payout. He refused payments for 2008 and 2009.
In 2008, the bank posted a loss of £24.3 billion, the biggest in UK corporate history.
Additional reporting: Bloomberg
