Lloyds Banking Group returned to profitability in 2010, as its retail banking arm saw a boom in activity and it showed that hoovering up HBOS was not going to lead to its ruin.

In the 12 months to 31 December, pre-tax profit for the 41 per cent government-owned bank was £2.2 billion, compared to a loss of £6.3 billion in 2009.

Profits in the high street division of the group more than tripled during the period, to £4.7 billion from £1.3 billion in the previous 12 months.

Eric Daniels, chief executive of the group, said: 'We also realised substantial cost savings, and we are on track to deliver our target of £2 billion of run-rate cost synergies from the integration of HBOS by the end of 2011.'

At the height of the financial crisis, Lloyds's takeover of HBOS was highly controversial due to concerns surrounding lack of competition in the banking sector. The integration of HBOS has subsequently proved challenging, with the latter's array of bad debts leading to much of the enlarged banks losses last year.

Lloyds surge back to profit has been helped by a 45 per cent reduction in the impairment charge, at £13.1 million, rather than £23.9 million in 2009.

Troubles stemming from the debt crisis in Ireland, which hampered banking rival Royal Bank of Scotland's performance last year, pulled the performance of Lloyds' wealth and international arm down and increased its loss to £4.8 billion from £2.3 billion.

The group admitted in December that defaulted loans to Irish property developers would cost it £4.3 billion in losses.

Despite this reliance on the government has eased over the past year, with a reduction in liquidity support from the government and central bank facilities from £97 billion to £61 billion.

Daniels, who is soon to depart the post of chief executive and be replaced by former Santander big gun Antonio Horta-Osorio, said: 'As a result of the significant progress we have made in 2010 Lloyds Banking Group is now a much stronger business and is well positioned to realise the potential within its franchise.'

Paul Mumford, senior fund manager at Cavendish Asset Management, said it was a 'welcome relief to see Lloyds back in the black'.

He added: 'While Eric Daniels can lock his office for the last time feeling that he’s put the bank back on the road to recovery, his successor still has a lot to do and full rehabilitation might take longer than expected.'