Lloyds Banking Group has reported a return to profit for the first half of the year, beating forecasts in the process. 

Pre-tax profit for the six months to the end of June came in at £1.6 billion, compared with loss of £4 billion in the same period last year, a turnaround which is largely due to a drop in the amount set aside to cover bad loans. This amount fell from £13.4 billion to £6.5 billion.

Total income at Lloyds rose by almost a third, to £12.5 billion.

The bank, which is 41 per cent-owned by UK taxpayers, had trailed the profits news earlier this year but did not disclose figures until today.

Chief executive Eric Daniels said: 'The group aims 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.'

The news has made analysts more optimistic about the potential for taxpayers to see a profit from their investment in the bank.

Lloyds is also likely to hit its gross lending targets, set by the government as part of its bail-out conditions.

In the first half of 2010, the bank extended £14.9 billion of gross new mortgage lending and £23.7 billion of committed gross lending to businesses, of which £5.7 billion was for SMEs.

Under the terms of its government lending commitments it agreed to make available gross new lending of £67 billion in the 12 months to March 2011, of which £23 billion would be extended to homeowners and £44 billion to UK businesses. In the four months from 1 March to 30 June 2010, Lloyds extended lending that qualifies under the programme totalling £8.4 billion to UK homeowners and £17 billion to UK businesses, of which £4.1 billion has been extended to SMEs.

Shares in the bank have risen sharply in recent weeks, gaining on the back of last month's confirmation that the bank had passed the European Union's stress tests.

Also today, Standard Chartered announced a 10 per cent rise in half-year pre-tax profits to £1.92 billion as bad debts more than halved and its key Asian markets fared better than those in the West. Losses on bad loans at Standard Chartered dropped to $437 million from $1.09 billion a year earlier as charges shrunk in the Middle East and elsewhere.

Lloyds' strong results followed HSBC's announcement on Monday that first-half profits had more than doubled to £7 billion. There was also a return to profit for Northern Rock's 'bad bank'.

The pressure is not off yet, though. Morgan Stanley says UK banks have to refinance £450 billion of funding across 2011 and 2012. The Bank of England believes this means raising a record-breaking £25 billion a month.