A sign for LloydsTSB bank hangs on the corner of Lloyd's Avenue in the City of London
A sign for LloydsTSB bank hangs on the corner of Lloyd's Avenue in the City of London January 21, 2010.

Shares in Lloyds Banking Group were up in morning trading on the FTSE 100 after the part-nationalised bank reported a bumper return to profit in the first half of the year.

In the first half of the year pre-tax profit was £1.6 billion, well ahead of the £800 million expected and a significant improvement on the loss of £4.0 billion reported last year.

Total income during the period was reported as rising five per cent to just under £12.5 billion.

The bank said that it had it had loaned a gross £14.9 billion for new mortgages to British homeowners and £23.7 billion in gross lending to British businesses.

Total impairments were halved from last year, when they stood at £13.4 billion, to £6.5 billion as of 30 June 2010.

Eric Daniels, Chief Executive Officer of Lloyds Banking Group, said, "I am delighted to announce our first half results which demonstrate the strength of the Group's core businesses."

He added, "The Group's aim is to be recognised as the UK's best financial services business and to deliver sustainable value through the cycle for our customers and shareholders. The principal element of the Group's strategy remains the focus on building deep, long-lasting customer relationships in all its franchises. We continue to support this with a focus on driving down costs and maintaining effective capital management disciplines, within a strong, prudent risk management framework. Based on our economic outlook and the current regulatory context we would expect to see a smaller, more productive balance sheet and are expecting returns on equity of more than 15 per cent over the medium to longer term."

Richard Hunter, Head of UK Equities at Hargreaves Lansdown Stockbrokers, commented, "Lloyds has made its own contribution to the generally positive global banking story so far.

"In particular, the level of impairments propelled the group into the black, following a significant drop from the previous year. Elsewhere, the net income figure was slightly shy of expectations, whilst Lloyds remains something of a proxy for prospects for the UK economy going forward. The absence of a dividend continues to remove an attraction to buy the shares, particularly for income seeking investors in the current interest rate environment. Even so, cost control remains a focus and the accompanying management guidance was reasonably positive. Whilst the government stake continues to overhang the shares, there is nonetheless a theoretical paper profit after the price has exceeded the quoted breakeven price of 63p.

"The shares themselves have had a strong performance of late, albeit from a low base, having added 31% over the last six months as compared to the wider FTSE100 gain of 5%. Even though the general market consensus remains that there is better value to be found elsewhere in the sector, the overall market view for the shares is a strong hold."

By 08:35 shares in Lloyds Banking Group were up 1.32 per cent on the FTSE 100 to 72.87 pence per share.