Royal Bank of Scotland has reported an 8 per cent drop in underlying earnings so far this year.

The troubled bank said full year figures would be impacted by rising bad debts and writedowns, which totalled £206 million in the third quarter, on top of £5.9 billion in the first half.

RBS is raising £5 billion under the Government's part-nationalisation scheme and is appealing for another £15 billion from shareholders.

It said a group-wide overhaul was under way and that it hoped to buy back the Government's £5 billion stake "as soon as it is prudent to do so".

Incoming boss Stephen Hester - hired to take over from Sir Fred Goodwin later this month - said RBS was aiming to pay back the £5 billion of taxpayer cash before its next dividend decision in early 2010.

Banks financed under the Government's bank bail-out cannot resume dividend payments until they have bought back the preference share stakes held by the State.

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