Royal Bank of Scotland is setting aside £400 million to settle foreign exchange rate rigging allegations, the state-backed lender announced today.

The announcement comes a day after rival Barclays said it was making a £500 million provision as it finalises talks with global regulators over the scandal.

RBS, which is 80% owned by the taxpayer after being rescued during the financial crisis, said it was putting aside a further £100 million to cover compensation payouts for customers mis-sold payment protection insurance (PPI).

It takes the lender's total bill for PPI to £3.3 billion.

RBS said profits for the third quarter were up to £1.27 billion, compared with a loss of £634 million in the same period last year.

It is the first time the bank has reported a profit for three quarters in a row since the financial crisis in which the bank nearly collapsed.

RBS also confirmed that following a strategic review it would retain Ulster Bank, which it said remained a core part of the group.

Litigation and conduct costs for the third quarter "included £400 million of potential conduct costs following investigations into the foreign exchange market".

The additional £100 million set aside for PPI reflected "higher than expected reactive complaint volumes".

RBS added: "Ongoing conduct and regulatory investigations and litigation continue to present challenges and are expected to be a material drag on both earnings and capital generation over the coming quarters."