Lloyds says to return to profit this year

The government, which also holds an 84 percent stake in Royal Bank of Scotland, has said it hopes to generate a profit for the taxpayer by selling its bank holdings, but has not set a timetable for disposals.

The bank, created by the government-engineered takeover last year of ailing lender HBOS by high street rival Lloyds TSB, has been hit by spiralling bad debts -- mostly inherited from HBOS -- as loans advanced during the boom years turned sour.

Lloyds, whose loans as a ratio to deposits stood at 169 percent at the end of last year, high by industry standards, is also striving to bridge the gap so as to reduce its reliance on expensive wholesale funding.

The bank had previously said that its bad debts probably peaked in the first half of 2009, and confirmed last month that total loan impairments fell by about a fifth in the second half of the year.

Lloyds, which cut 13,000 jobs in 2009, is also pushing through an austerity drive aimed at taking out 2 billion pounds in costs by the end of 2011.

The bank's 2009 results were reported on a "combined business" basis, which excludes some accounting items associated with the HBOS acquisition, and assumes HBOS was acquired at the start of 2008.

Lloyds' 6.3 billion pound loss last year compares with a 6.7 billion pound loss in 2008.

(Editing by Hans Peters)