Part-nationalised Royal Bank of Scotland is preparing to give huge bonuses to investment bankers despite expected annual losses of £7bn.

RBS, which is 84% owned by the taxpayer, is in final discussions with the Treasury over its bonus pool this year, according to the Sunday Times.

The bank could pay out around £1.3bn to its investment bankers even as around £14bn in bad debts plunge the ailing firm deep into the red, it says.

RBS declined to comment on the story although chief executive Stephen Hester has said it will pay its bankers “the minimum we can get away with”.

But Mr Hester has also stressed the profitability of its investment banking arm will also be a key factor in an eventual return of RBS to the private sector.

The final RBS bonus figure will be unveiled in the bank's results at the end of the month, although RBS is likely to stress that the share of revenues being paid out in awards has been lowered to reflect public anger over bumper payouts.