IT has been a landmark week for Royal Bank of Scotland (RBS).

The £3.6 billion settlement reached by the institution with the US Department of Justice over the bank's role in selling ‘toxic’ mortgages between 2005 and 2008 was the last of the major legacy issues which have plagued management since the financial crisis, paving the way for dividends to be paid for the first time in a decade.

For those looking for signs the bank is nearing the end of its rehabilitation following its £45bn government bailout in 2008, the declaration of an interim dividend of 2p per share was a seminal moment.

But can we now speak of RBS, once one of the world’s most powerful financial institutions, as a normal bank? Can a situation be envisaged where Scotland can once more take pride in a bank which continues to be one of the nation's biggest employers?

Or will the air of toxicity, fostered by savage branch cuts and mistreatment of some business customers, and the failings of former executives continue to prove difficult for management to overcome?

Jeremy Peat, the bank’s chief economist between 1993 and 2005, said it has been a “long and tough story” for RBS since it was saved from collapse by Gordon Brown’s Labour government as the world was gripped by financial crisis.

But he believes the fact that bosses have seen fit to turn the dividend tap back on is a welcome sign of progress. “I think it has to be,” Mr Peat said. “I can’t believe that a dividend, even a very small first dividend, would have been paid unless the management and board genuinely believe they are now on a more positive road.”

Mr Peat said the bank’s recovery is also good for competition in the banking market.

“This all matters for Scotland, because we have a very narrow banking base,” he said. “We always have had. I’m a great believer in competition. We need good competition for the personal customer, the small business customer and for medium-scale and growing businesses. It is great to see the new banks entering the marketplace, but we need the likes of Royal Bank there as well.”

Royal Bank is certainly a much smaller beast now compared with the globe-straddling presence it had before the crash, albeit, with 12,000 staff in Scotland, it is still one of the country's biggest private sector employers. The need to revive its capital position following its bailout has led to a massive contraction of its balance sheet. Many business units within the bank have been sold off to raise funds – often to the detriment, some say, of its growth prospects.

Criticism was levelled, for example, when RBS was pressured to sell its stake in US bank Citizens in 2015, amid the belief it could have played a positive role in the bank’s recovery. The bank also sold its majority stake in payment processor WorldPay for £2bn in 2010, only to then see it change hands again for £9.1bn seven years later. An important rider here, however, is the bank had been forced to sell WorldPay under European state aid rules, which kicked in as a result of its government bailout. Those rules meant the bank had to dispose of non-core assets for competition reasons.

Reflecting on its pre-bailout presence, Mr Peat recalls that the magnitude of the bank meant the “multiplier effect” it had on Sottish income and employment was “phenomenal” 15 to 20 years ago. Back then it employed 15,000 to 16,000 staff in Scotland, though a large chunk of those were at Direct Line, its then insurance business.

While staff numbers have fallen, he is still of the view the bank is important for the Scottish economy. “We’ve still got a major head office presence at the Gyle [Gogarburn],” Mr Peat said. “It may no longer have the top echelons, but it has got a lot of highly-paid, highly-skilled professionals, so that provides a large part of a good labour market in the financial services sector. "

He added: “We have very few big companies in Scotland. We need big companies as part of our economy, and it will be great to see the RBS reinstated as one of those big companies – one that’s financially viable where people can look for good careers, using skills and developing skills.”

David Watt, executive director of the Institute of Directors (IoD) in Scotland, said a fully functioning RBS will be good for Scottish business - if it ups its lending support to firms. The bank’s overall lending, including business loans and mortgages, in Scotland currently totals £20bn.

“If companies don’t have a good relationship with banks, they are not likely to expand because they don’t have the capital,” he said. “They won’t go and look for it because they won’t have faith in their banks. Bank of Scotland and RBS have both sort of lost that. If we can restore that now that will be massively important for expanding the Scottish economy generally.”

Mr Watt added that all banks, not just RBS, have to work hard to repair relationships with business which were damaged by the financial crisis.

There can be little doubt the bank is continuing to deal with reputational damage. This week RBS came joint bottom in a survey of personal and business banking customers by the Competition and Markets Authority, with less than half of customers stating they would recommend the institution. It has also come in for heavy criticism for making savage cuts to its branch network, the latest tranche of which is seeing up to 62 close in Scotland. There are currently 99 RBS branches open north of the Border, which could be reduced by a further 10, depending on the outcome of a review.

Entrepreneur John Watson, who for several decades ran a successful printing business in Glasgow, has likened the branch cuts of recent years to the Beeching rail network cuts of the 1960s. He was scathing of Royal Bank’s move to close branches in communities such as Barra and Rothesay.

With UK taxpayers still holding 62.4% of shares in the bank, he said the public should have a say in the future of such outlets. “These branches should be frozen, and offered to other banks,” he said. “Someone will take them on; you just can’t have a community that suddenly has a bank taken away from them.”

Mr Watt said there is still some way to go before pride is fully restored in RBS. “The big step for business [to get] back to believing it is a really great organisation is when they really have even more money available to new and smaller businesses, many of whom have fallen away from relationships with banks,” he said. “There are still a few years to go before people have 100% faith in banks, the way they did 15 years ago. But there is no question under the current regime it has improved dramatically.”