The Royal bank of Scotland has pulled itself out of debt at the pre-tax level by recording a gross profit of £15 million for the first half of this year.
The partially publicly-owned bank has benefited from a £3.8 billion gain on the falling value of its own debt.
However, the bank, which is 70% owned by the taxpayer following a £20 billion bailout, eventually slid to a net loss of £1 billion after tax and other payouts such as dividends on the preference shares that were held by the Government were taken into account.
Chief executive Stephen Hester warned that RBS may not see significant improvements until 2011 and that a full recovery could take a long time.
He said that measures had been taken to scale down the size of RBS by 26% or £574 billion so far this year to give the bank a more stable base.
"There will be no miracle cures. Our task is no less than one of the largest bank restructurings ever done, in the face of strong economic headwinds," he said.
The RBS boss added: "There is every sign that our financial performance over the next two years, at a group level, will be poor due to the severe economic downturn in 2008 and 2009 and consequent impact on impairments and funding costs."
The chief executive is splitting RBS into unwanted parts which would be wound up or sold, and those businesses which would be kept on.
The "core" bank made operating profits of £6.3 billion in the first half of the year, Mr Hester said, helped by a "creditable rebound" in the group's investment banking business.
RBS - which made lending commitments in return for financial support - has made new loans totalling £36 billion to UK homeowners and businesses in the first half, including 100,000 business loans with an 85% acceptance rate among smaller firms.
But the chief executive also warned that the mega-practices of the banking sector were not going away, although RBS has reformed its own bonus system.
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