Royal Bank of Scotland has said it risks missing an end of 2017 deadline to sell its Williams & Glyn brand.
This will raise doubts about how soon it will be ready to pay dividends and return to private ownership.
Selling Williams & Glyn brand was a condition of the bank's rescue during the global financial crisis.
RBS said it had undertaken "further extensive analysis" on the separation and divestment of the business.
It concluded that the deadline may not be met and saying it was exploring alternative means to meet its commitment to regulators.
"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," the bank said in a statement.
"The overall financial impact on RBS is now likely to be significantly greater than previously estimated," it added.
The separation process has already cost RBS, which is 73% owned by the UK taxpayer, about £1.5 billion.
RBS had earlier committed to a sale of Williams & Glyn before the end of 2017, under the terms of its £45.5 billion bailout at the peak of the 2007/2008 financial crisis.
Williams & Glyn has 1.8 million customers, net loans and advances of £20 billion and customer deposits of £24 billion.
A carve-out from its parent would have made it one of the largest of the new banks that regulators hope to nurture to boost competition.
RBS, which owns Ulster Bank here, will report first quarter results for 2016 tomorrow morning.
