The High Street bank Lloyds TSB has announced that its profits rose 7% to �3.9bn last year.

The figure compares with profits of �3.6bn in the previous year.

But the results were overshadowed by the continuing battle that Lloyds is waging to seize control of its rival bank the Abbey National.

Lloyds is still hopeful that it can convince the Abbey to abandon its agreed merger with Bank of Scotland and accept instead the �19bn offer from Lloyds that is still on the table but has been officially rejected by the Abbey's board.

Watershed

Lloyds is the latest UK bank to report strong profits.

Earlier this month Barclays saw a �1bn jump in annual profits, while Abbey National this week reported profits a fraction below �2bn.

Lloyds called the year 2000 a "watershed year" for the financial services sector which heralded "dramatic change in the use of technology, driven by the internet".

It was also a significant year for banks because of the findings of a government inquiry - known as the Cruickshank report - which gave a damning assessment of some anti-competitive banking practices.

Banks also faced a significant increase in competition from both traditional players and new entrants.

Online additions

But despite increased competition, Lloyds saw its figures for customer lending grow by 12% to �114bn and added 1.2 million online customers.

Lloyds is now waiting for a UK government decision on the deal, due by 23 February.

Trade minister Stephen Byers can either clear the takeover or refer it for investigation by the Competition Commission.

The merger would create the UK's second biggest bank, but could mean 9,000 job losses and 600 branch closures.