UPDATE 3 — Royal Bank of Scotland on Friday announced a £1.7 billion dividend, of which more than £1 billion will go to the UK taxpayer.

However, RBS warned that deteriorating economic conditions before Brexit could derail next year’s profitability and cost targets.

RBS shares fell about 7%.

Unveiling its first-half results, RBS announced an interim ordinary dividend of 2p and a special dividend of 12p, representing £1.7 billion being returned to shareholders.

RBS is still 62%-owned by the UK taxpayer after its £45 billion bailout during the 2008 global financial crisis.

RBS reported a first-half operating profit before tax of £2.694 billion and an attributable profit of £2.038 billion.

But the company warned that some of its consumers and businesses struggled in the first half of the year amid fears of a disorderly UK departure from the European Union. 

RBS said such a tough outlook would make it “very unlikely” it would meet its target of achieving a 12% plus return on tangible equity — a measure of profitability. 

The bank said it would struggle to reduce its cost to income ratio to below 50% by 2020, although this remained its medium term goal.

RBS CEO Ross McEwan said: “This is a solid set of results in challenging market conditions.

“We have delivered our largest half year profit in more than a decade and have announced a further £1.7bn in dividends to shareholders, of which more than £1bn will go directly to the UK taxpayer.

“Given the uncertain and competitive environment, we are focussed on the areas we can control; costs are down, capital and liquidity are strong and we continue to grow lending to the real economy.”

Edward Firth, analyst at KBW, said: “This is overall another set of disappointing of results from RBS, which is now facing an extremely demanding operating environment.”