Royal Bank of Scotland shareholders will have to wait longer than expected for a dividend from the bank as it struggles to separate its Williams & Glyn network to meet EU requirements.

The warning, which depressed RBS shares by two per cent, came as Lloyds signalled a steady recovery with no surprises on profits and no new damaging provisions for past scandals.

RBS shocked investors on the eve of its first quarter results today by revealing that the overall financial hit from demerging its 300-branch Williams & Glyn network will be “significantly greater” than estimated, following a £630m cost last year.

The European Commission set the bank a deadline of December 2017 for the divestment when it agreed the bank’s £45billion bailout in 2009, and taxpayers still own 73per cent of RBS,

RBS chief executive Ross McEwan stressed in a City speech last month that the divestment was one of “five key milestones” the bank must pass before it can resume dividends. It prompted analysts such as Goldman Sachs, which has a share price target for RBS of 370p or 50per cent higher than now, to warn of a danger of “execution risk” in the divestment.

The bank said: “Due to the complexities of Williams & Glyn’s customer and product mix, the programme to create a cloned banking platform continues to be very challenging and the timetable to achieve separation is uncertain. RBS is exploring alternative means to achieve separation and divestment.”

Meanwhile Lloyds Banking Group, now only 10 per cent owned by the government, has reported underlying profits in line with expectations, keeping first quarter revenues steady and cutting bad debts despite the challenging economic environment.

Lloyds,the UK’s largest mortgage lender, reported underlying pre-tax profit of £2.1bn pounds in the first quarter, six per cent below last year’s £2.2bn. and just above the £2bn estimate of leading analysts.

Bad debt charges dropped by six per cent to £149m, despite a slowing economy at the start of 2016. The key net interest margin, the gap between the rates for borrowers and savers, rose to 2.74per cent, as the bank cut the rates paid to depositors.

Antonio Horta-Osório, chief executive, said: “These results demonstrate the strength of our differentiated, simple, low risk business model and reflect our ability to actively respond to the challenging operating environment.”

Total income fell by one per cent to £4.4bn as higher revenue from the retail bank was offset by a fall at the Scottish Widows insurance division.

But to market relief Lloyds added no new provisions for the historic mis-sale of payment protection insurance (PPI) beyond the mammoth £16bn already provided.

However the bank did provide a fresh £115m for undisclosed “retail conduct matters”, as well a £790m charge for buying back bonds which it says will help lower funding costs. That helped depress its statutory pre-tax profit by 46per cent to £654m from £1.12bn a year ago.

Danny Cox at Hargreaves Lansdown said: “Other banks would like to be where Lloyds is, especially now that it looks to have drawn a line under the whole sorry PPI affair. Capital ratios are strong and there is little need to build ratios up any more, so in future, the bank can give the rest back to investors.”

Mr Cox said bad debts were “extraordinarily low” due to low interest rates are and high employment which combined with the bank’s strong cost-cutting performance “certainly bodes well for earnings in the near term”.

He said investors would have to wait for the government’s shares sell-off, with the price still below its 74p break-even, but “on current consensus forecasts, Lloyds offers a dividend yield of over six per cent in the current financial year”.

RBS shares closed down 5.6p at 246.5p. Lloyds was down 1.14p at 68.11p.