Royal Bank of Scotland (RBS) has reported it made a £691 million loss during the first half of 2007, the second biggest loss in UK banking history.

The results were described as a “chastening experience,” something the group’s board “regret very much”.

Largely to blame were £5.9 billion worth of write-downs on numerous subprime and mortgage assets.

The acquisition of ABN Amro by RBS also played a significant role.

Over the same period in 2007, RBS made a profit of some £5 billion, illustrating the turbulence in the market UK lenders have faced since the onset of the credit crunch in late 2007.

However, RBS did confirm underlying profits – that before tax, credit market write-downs and one-off items, amortisation of purchased intangibles, integration costs and share of shared assets – was just three per cent lower at £5.1 billion.

The losses mean adjusted earnings per ordinary share fell ten per cent to 21.3 pence.

The figures didn’t turn out to be as bad as was feared, with some analysts having predicted RBS would report a loss in excess of £1 billion.

“The first half of 2008 has been as difficult an operating environment as we have encountered for some time, presenting both general and specific challenges to RBS,” explained RBS group chief executive Fred Goodwin.

“The results we have published today demonstrate progress in a number of important areas, and it is all the more unsatisfactory, therefore, that they record a loss as a result of our credit market write-downs.

“We are determined to ensure that the inherent strengths of the Group’s diverse business model are not obscured in this way again.”

This completes a terrible week for the UK banking sector, with Lloyds TSB recording a 70 per cent fall in profits, and HSBC and Barclays also reporting significant drops.

Earlier this year, RBS was forced to go to shareholders for a £12 billion rights issue. Buyers eventually purchased 95 per cent of the shares on offer.

In morning trading, shares in RBS climbed 1.07 per cent at 08:27 BST, to 235 pence per share.