Royal Bank of Scotland boss Stephen Hester is set to waive his annual bonus payment.

The chief executive is understood to be gearing up to decline a payout for 2009 after coming under pressure in the face of predicted hefty losses for the bank.

RBS, which is 84 per cent taxpayer owned after a number of bailouts, is expected to report a shortfall of around £5.3 billion when it announces its results on Thursday.

Mr Hester’s decision not to take his bonus allocation comes after Barclays’ top bosses opted to waive their right to payouts last week.

The RBS chief is in the midst of a five-year turnaround plan to restore the bank to health after taking on the job at the height of the financial crisis.

His remuneration package could reach £9.7 million - which he has said even his parents think is too much - based on his efforts to restructure the bank as well as its profitability.

RBS is understood to still be in talks with UK Financial Investments (UKFI) - the body that manages the Government’s stakes in bailed-out banks - over the overall size of its bonus pot.

Current estimates put the total at around £1.3 billion for its investment bankers, despite forecasts of a second year of losses at the group.

RBS posted a record £24.1 billion pre-tax loss for 2008 and is expected to have stayed in the red last year, although the shortfall is much narrower.

The bank’s high-earning staff will not be paid cash bonuses for 2009, although staff paid less than £39,000 will be able to take home a cash bonus of up to £2,000.

Mr Hester has said the firm would pay its investment bankers “the minimum we can get away with” in the bonus season, but has warned that the bank must be able to attract and retain key staff.

Huge windfall profits among investment banks are in prospect this year, fuelled by state interventions to prop up the system following the financial crisis and reduced competition after the demise of players such as Bear Stearns and Lehman Brothers.

The bonus issue will resonate especially as both RBS and Lloyds Banking Group - itself 41 per cent owned by the taxpayer - are expected to miss lending targets set by the Government in return for state support.

Business Secretary Lord Mandelson warned that it was not the time for Mr Hester to collect a reward for his work at RBS.

Asked about the issue, he said: “What I would say to RBS is this and to their chief executive Stephen Hester, who is a rather strong and rather able man but whose performance and delivery has not yet been tested: if further down the line in years to come he has done well and he has turned round RBS he deserves something back for it and I would be the first to say so, but not now.”

He added: “What we have said to them is that their priority is repairing their balance sheets and getting their capital back in place and lending again fully.

“The bonus pool they have indicated is very much at the lower end of the banks.”

Barclays’ chief executive John Varley and president Bob Diamond last week sacrificed their bonuses for the second year in a row in a bid to pacify clients and shareholders hit by recession.

The banking giant, which did not accept direct state help, surged to record profits of £11.6 billion last year.

But it was unable to duck public ire over its remuneration policies after more than 23,000 of its investment bankers pocketed an average £191,000 in pay and bonuses for the year.