Many of Ulster Bank’s loans are expected to be placed in an internal ‘bad bank’ at Royal Bank of Scotland as part of a British government plan for the part-nationalised lender.

A British Treasury-commissioned report is set to call for soured loans and toxic assets to be placed in a ring-fenced, internal division, avoiding demands for a full carve-up of the institution.

However, the plan is expected to fall short of dumping the whole of Ulster Bank - a major lender in Ireland - into the internal ‘bad bank’.

The lender, which is 80% owned by the British government, is likely to make the announcement alongside its third-quarter results.

They are forecast to show operating profits of £800 million in the three months to the end of September, lower than the £1.05 billion reported a year earlier as its investment bank shrinks.

British Chancellor George Osborne appointed investment bank Rothschild during the summer to weigh up the case for a good/bad bank split, but the plan has since faced a barrage of opposition from shareholders.

Mr Osborne is under pressure to boost lending to the economy and speed up RBS's return to the private sector.

The plan will avoid the need for a shareholder vote, unlike a full nationalisation of the bad bank, a strategy which faced vocal investor opposition.

RBS already has a "non-core" division, run by Rory Cullinan, and the scale of the new internal "bad bank" is expected to correspond roughly with this - although it could be bulked up with more problem assets.

By the summer, RBS had already shrunk its non-core book to £45.4 billion from £258 billion in 2009.

It expects to fall further to around £36 billion by the year-end.

The report could also call for an accelerated sale of its Citizens US bank, said to be worth around £8 billion, plus see the closure of its investment banking division.

Analysts at UBS recently said they see "limited benefit" from a full split.

They said: "We would not be surprised to see the existing envelope of non-core expanded with this accompanied with an acceleration of business disposals to bring RBS back to an increasingly UK-focussed business."

RBS and the Treasury declined to comment.