Although the numbers were boosted by a one-off profit of £776m on government bond sales as well as support from the Funding for Lending Scheme, the bank believes its new profitability is sustainable.
Underlying profit came in at £1.5bn, bad loan provisions fell 40 per cent to £1bn and PPI redress provisions were unchanged indicating the bank is past the worst of the claims.
Lending to small firms increased four per cent in the year to March, while lending to the other firms also rose in the quarter, three months ahead of the bank’s previous plans.
Once the uncertainty around the Bank of England’s demands on capital and the EU’s decisions on the new CRD4 directive is resolved, Lloyds believes it will soon pay dividends.
“If the Financial Policy Committee has dealt with capital and we know the UK interpretations of CRD4, those discussions can commence,” finance director George Culmer told City A.M. “If we continue to present robust profits, then yes it is time to sit down and talk about dividends.”
Dividend payments would be a key milestone on the path to a sale of the government’s 39 per cent stake.
Lloyds’ shares hit 57.2p at their highest yesterday, closing in on the 62p break-even level which would see the government get the full cost of its £20.5bn bailout back.
It is understood the government hopes to sell up at the end of 2014 if the improvements continue.