Banking sector hopes rise after Barclays' profits reach £11.6bn

The near-doubling of profits raised shares across the sector with Barclays up seven per cent at 293.75p, while shares in Halifax owner Lloyds rose five per cent to 49p.

Investors welcomed Barclays' optimistic outlook for 2010 and good news on bad debts, raising hopes the other banks would follow suit.

Analysts said the decision by Barclays top two executives, John Varley and Bob Diamond, to decline their 2009 bonus would make it hard for taxpayer-backed Lloyds and RBS to hand out large payouts.

Barclays' chief executive Mr Varley said: "The bond of trust between banks and stakeholders has been damaged by the credit crunch and the economic recession. That bond must be restored to health by how banks behave – how we lend, and how we pay."

Barclays said its investment bankers would receive average pay of 191,000 for 2009, including an average bonus of 95,000.

The bank will pay 1.5bn in discretionary cash payments for 2009 and a further 1.2bn in long-term awards.

Barclays' board decided that Mr Varley and Mr Diamond should receive bonuses, but the pair decided to forgo theirs for a second successive year, although Mr Diamond did land a 22m windfall from the sale of shares in Barclays Global Investors.

Bonuses for other top directors will be deferred over three years and subject to clawback.

The bank will pay the Government 225m under a 50 per cent tax on bonuses over 25,000.

Mr Varley said the bank had to be sensitive about what it paid when public sector workers faced salary freezes but it had a responsibility to "field the best team" and the market for the best people was competitive.