Royal Bank of Scotland said it may face "material fines" in relation to how Libor and other interest rates were set after talks with regulators which it expects to begin soon.

"The group expects to enter into negotiations to settle some of these investigations in the near term and believes the probable outcome is that it will incur financial penalties," RBS said as it presented third-quarter results on Friday.

It said it had dismissed "a number of employees for misconduct" after its investigations into interest rate setting.

RBS is under investigation by U.S. and UK authorities over the Libor interest rate rigging scandal and is expected to be one of the next banks to settle after its UK rival Barclays was fined $450 million in June.

That and other past issues are threatening to overshadow attempts to turn around the bank by Chief Executive Stephen Hester, who said on Friday his restructuring would be complete in the next 15-18 months.

RBS said it made an operating profit of 1.05 billion pounds ($1.69 billion), up from 2 million pounds in the same period the previous year, as losses from bad debts dropped.

The part-nationalized bank set aside another 400 million pounds to compensate customers mis-sold loan insurance, bringing its total provision to 1.7 billion pounds.

(Reporting by Matt Scuffham and Steve Slater; Editing by Helen Massy-Beresford)