Lloyds Banking Group reports return to profit

Lloyds Banking Group says it has returned to profit for the first three months of the year.

The firm did not release specific figures, but said it expected to make profits through the rest of the year.

The bank said the rate of impairments - essentially bad debts - had improved and this should mean it would make more money than previously predicted.

It added that economic conditions were "more benign", asset prices were rising and funding costs were lower.

The news sent shares in the bank, which has the highest number of shareholders in the country, up 4% at first, but by the close of trade the shares were down 2.95%.

Taxpayers own 41% of the company, with the government having paid an average of 73.6p a share for its stake.

The bank still faces a formidable challenge to reduce its dependence on loans and guarantees provided by British and overseas taxpayers Robert Peston, BBC business editor Read Robert's blog

The BBC's business editor, Robert Peston, said the Lloyds result showed a "remarkable turnaround".

He added that loans on losses were shrinking fast because borrowers - both individual and corporate - were finding it easier to keep up with repayments.

And the results suggested that the banking sector had turned a corner, said industry analyst Ralph Silva of SRN.

"For the first time in about four years, I woke up this morning and all the British banks seemed to be going in the right direction, and that's forward - and that's a very welcome state for the economy," he told the BBC's World At One programme.

Close watch

Lloyds admitted the amount it was lending had remained flat, but said this was because loans were being repaid more quickly than it had expected.

That picture was supported by figures from the British Bankers' Association, whose latest figures showed repayments on personal loans and overdrafts continued to outstrip new borrowing.

The bank said it was keeping a close watch on economic conditions, particularly on its investments in the Irish Republic, which has a bigger budget deficit than Greece and has suffered a deep recession.

In 2009, Lloyds Banking Group lost £24bn on bad loans, pushing the bank into a heavy loss.

The bank reported an operating loss of £6.3bn for 2009, almost unchanged on the £6.7bn it lost in 2008.

The Business Secretary, Lord Mandelson, said Lloyds' return to profit was encouraging news.

He said it showed that the prime minister had made the "right judgment calls" in saving the banks and he looked forward to the day when taxpayers would get a "top dollar return" on their investment. He conceded, though, that the "time hasn't arrived yet".

Liberal Democrat leader, Nick Clegg, agreed the government should not rush to sell its stake.

"If you do that too quickly, then the banks have even more incentive to hold on to money to repair their balance sheets and not lend it to British businesses."

The Conservative's Treasury spokesman, Philip Hammond, said Lloyds needed to do more to help the economy: "What we now need to see is the bank meeting its obligation to the wider economy, getting credit flowing through to the businesses and households that need it."

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