by business editor Trevor Sturgess

"We've got to stop messing things up," the chairman of Royal Bank of Scotland has told KentOnline.

Sir Philip Hampton (pictured right) said banks had to behave a lot better to restore their reputation and regain customer trust.

He was speaking after RBS, which is 82% owned by the taxpayer, revealed losses of £5.2billion.

These were largely due to fines for LIBOR-rate rigging, the massive cost of compensating customers who were mis-sold payment protection insurance (PPI) and money set aside for business customers wrongly sold interest rate swap products.

He added: "The bank has done bad things - we should never have run out of money, we should never have committed the LIBOR scandal, we shouldn't be mis-selling."

Sir Philip was "horrified" that RBS and the other banks were in such a financial mess and had to be bailed out by the taxpayer. The bank had to make sure it never happened again.

"We've got to do better things for our customers, we've got to stop messing things up and over time we will build trust. We have done bad things and we do deserve a lot of reputational knock, but most of our customers are pretty happy with what we do."

He did not know how long it would take to restore that reputation, but it would not be "overnight".

The bank was keen to lend, especially to smaller businesses, but was "short of lending opportunities".

Weak demand is partly down to the £670bn cash pile that mainly larger companies are sitting on. Sir Philip said that was why RBS was focusing on smaller businesses to stimulate loan growth.

But that did not mean relaxing lending criteria. Applicants should be "credit-worthy" and 90% of applications were approved by the bank.

He said RBS aimed to put the bank into a position by 2014 so the government could explore options for selling its stake. One option is to give shares to every taxpayer, but Sir Philip said that would be "expensive and difficult to manage".

As for bankers' bonuses, he said some were "too highly paid" in the investment business and this year's bonus pool had been reduced.

Meanwhile, Lloyds Banking Group - around 40% taxpayer-owned - revealed losses of £570m today, mainly due to the soaring cost of PPI compensation.