The UK's second largest bank, the Royal Bank of Scotland, has delivered 2007 profits in line with expectations, says the company. Despite credit crunch-induced losses, dividends were hiked 10%.

But, while analysts are expecting a positive share price reaction, they warn it'll be short lived as the bank struggles to raise the dividend in the future. Shares were stable, off 2.8p in early trade to 407.3 pence.

Alex Potter, analyst at independent broker Collins Stewart, said: 'We expect a relief rally in the short-term but feel capital tension and low dividend growth will remain issues for RBS.'

In his reference to 'capital tension' Potter is talking about RBS's capital ratio. The capital ratio is a measure of a bank's financial strength and RBS reported a 'Core Tier 1' capital ratio of 4.5%.

'This is above our 4.1% estimate and we believe there are bears in the market with expectations below 4%,' said Potter. 'Management indicates it will rebuild capital from this level, we feel this means dividend growth will be materially slower in the coming two to three years.'

RBS said its underlying pre-tax profit for the year to 31 December came in at £10.3 billion, up 9% compared with the previous year. That figure matches analysts' expectations exactly according to a consensus forecasts supplied by RBS.

The figure does not include the businesses that RBS acquired from Dutch rival ABN Amro last year but does account for losses linked to the sub-prime crisis in America.