RBS heads back into the black - just

Part-nationalised Royal Bank of Scotland fuelled recovery hopes for the sector today as it steadied the ship with a return to profit for the first half of 2010.

The bank's slim £9 million surplus - against a £1.04 billion loss a year earlier - came after improving bad-debt losses as it moved from a £248 million loss in the first quarter to a £257 million profit between April and June.

Chief executive Stephen Hester said turnaround plans for RBS were on track, but said the task ahead was a "marathon not a sprint". The recovery would not be steady and there was "plenty left to do", he warned.

RBS is the last of the UK's "big four" banks to report results this week. The break-even performance comes after stripping out factors such as one-off gains on its own debt.

HSBC and Barclays have been the strongest performers this week with profits of £7 billion and £3.9 billion respectively - as banks benefit from lower bad debts - although Lloyds also produced better-than-expected profits of £1.6 billion.

Mr Hester flagged up further staff culls ahead after 2,600 jobs losses at its insurance and retail banking arm already this year, bringing total cuts at the business since the crisis began to 22,600.

He warned: "It is absolutely inescapable in the modern world that we have got to be at the forefront of efficiency," he said.

The chief executive is also in the process of selling 318 branches to Santander as well as its credit card processing arm as it seeks to appease European competition concerns.

Hargreaves Lansdown head of equities Richard Hunter said RBS had ended the bank reporting season in "quietly confident" fashion.

Mr Hunter said: "The company has crept back into the black, further asset disposals should help focus future strategy and the new management team are well aware of the length of time any potential recovery may take."

Shares in the bank rose 2% - giving the taxpayer a £3 billion profit on its stake - although when the public sector will begin selling shares is still uncertain.

Mr Hester said the timing of sales was a matter for the Government. "We are trying as hard as we can to put them in a position where they can profitably sell," he said.

RBS's retail banking arm, which owns NatWest and now has 12.9 million current accounts, boosted operating profits to £416 million during the first half, helped by wider margins on lending.

The net interest margin - the gap between what it pays in interest and what it charges in loans - rose to 3.77% from 3.57% a year earlier at its retail arm. Bad-debt losses fell to £687 million from £824 million in the first half of last year.

"Widening asset margins across all products and an increasing number of mortgage customers choosing to remain on standard variable rate were the key drivers," the bank said.

The bank remains on course to meet its £8 billion mortgage lending target for the year to February 2011, although RBS saw signs of weakness in the second quarter with a 21% fall in application volumes.

The group lent a gross £12.7 billion to businesses between April and June - 27% above a year earlier - but said "overall activity levels remain somewhat subdued", with many businesses looking to cut debt and paying back a net £1.4 billion over the quarter.

The group's investment banking arm had a "more difficult" quarter thanks to the sovereign debt crisis which struck markets in April.

Revenues dipped 31% between April and June after a strong first quarter and operating profits fell to £2.5 billion over the first half of 2010, down 44% on a year earlier.

RBS bought Dutch bank ABN Amro before the credit crunch struck in 2007, but the disastrous deal weakened its balance sheet and the Government was forced to pump in £45 billion to keep the bank afloat.