By Jason Theodorou

Lloyds Banking Group has returned to profit in the first half of the year, reporting a pre-tax profit after a huge loss in 2009. The bank saw a drop in the amount set aside to cover bad loans.

Pre-tax profits at the bank, which is 41% owned by UK taxpayers, came to £1.6 billion, which compares with a loss of £4 billion in the same time in 2009, according to the bank's results statement.

Chief executive Eric Daniels said: 'The first half of 2010 was a significant milestone for Lloyds Banking Group, as the group returned to profit'.

'Despite the challenging economic environment, the core businesses performed strongly and we continued to see positive momentum across all the key income statement line items: income, margins, costs and impairments and an extension of the positive business trends established in 2009'.

Total income at Lloyds rose by nearly one third, from £9.8 billion to £12.5 billion, while costs decreased by over £1 billion, as a ressult of job losses. This served to boost profits. Shares in Lloyds increased by 1.7%, beating analysts' forecasts.

Lloyds ran into trouble in 2008 when it took over banking group HBOS, and allegedly failed to take note of the number of bad loans on the HBOS books. This forced the government to step in to bail out the bank at a cost of £21 billion.

Lloyds had predicted its return to profit in April this year, and in a statement said that 'the group is well positioned to deliver a strong financial performance over the coming years'.

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