Lloyds returns to profit

The bank, which is 41 per cent owned by the taxpayer, said it expects to sustain the "momentum" throughout 2010 and report profits at both the half year and full-year stage.

Its first quarter performance marks a significant turnaround on the 6.3bn losses reported for 2009 after the HBOS takeover and financial crisis left Lloyds with a colossal 24bn in bad debts.

Lloyds said it saw a significant slowdown in the level of bad debt charges as improving economic conditions help borrowers on to a firmer footing.

But the first-quarter return to profitability came mainly as a result of a better-than-expected improvement in impairment charges in the wholesale business, according to the group.

Eric Daniels, group chief executive of Lloyds, said: "I am pleased to report that we returned to profitability in the first quarter and expect this momentum to be sustained throughout 2010."

The group added that "positive trends" in the business and wider economy would drive further profits this year.

The Halifax Bank of Scotland owner did not provide a profit figure in today's update, but news that it clawed out of the red in the first quarter provides welcome cheer for investors - and the Government, which was forced to pump in 20bn to rescue the group.

The taxpayer has already recouped many of the paper losses on its stake in Lloyds in recent weeks after shares were boosted by the bank's prediction last month of profits this year, and shares were up another four per cent today.

Lloyds said trading was helped by an increase in customer savings deposits, which grew by more than 5bn in the first quarter.

Overall banking margins - under pressure since interest rates were dropped to historic lows - are "trending positively" and the group confirmed aims to deliver a two per cent margin for the full year.

Lloyds said it was supporting the economy by lending, but said overall lending balances continued to reduce - albeit at a slower pace - as the group pulls out of riskier areas.

It has made lending commitments to the Government in return for state support.

Lloyds exceeded its mortgage lending targets in the year to March, but failed to match the business loan commitments as hard-hit businesses instead chose to pay off borrowings.

It said it expects to lend 67bn, excluding remortgages, to UK businesses and homeowners this year.