Taxpayer-funded Royal Bank of Scotland is set to hand out huge bonuses to bankers despite expected annual losses of £7 billion, it was reported today.

RBS, which is 84% owned by the UK Government, is in final discussions with the Treasury over its bonus pool this year.

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.

RBS declined to comment though 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.

Huge windfall profits among investment banks are in prospect this year, fuelled by state interventions to prop up the system following the financial crisis.

The final 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.

Chancellor Alistair Darling has introduced a one-off 50% bonus tax this year while President Barack Obama has pledged to get back “every dime” of taxpayer cash from banks and attacked “obscene” payouts.

UK Financial Investments, which controls the state’s holding in nationalised and part-nationalised banks, will also be consulted on the bonuses.