Lloyds Banking Group returned to profit in the first three months of the year, recovering from the £6.3bn loss it made in 2009.
The group, which is 43% owned by taxpayers, says it has returned to profit thanks to a slowdown in its level of bad debts.
Lloyds group says it has seen lower impairments across its retail secured and unsecured lending portfolios.
The level of impairments in the group’s wholesale division also fell compared with both the previous quarter and its original expectations for Q1 2010.
Although lending remained flat during Q1 2010, customer deposits grew by more than £5bn over the same period.
The firm says that the level of assets in its run-off portfolio is also continuing to reduce, although it admits this is at a slower pace than last year.
It adds that it has been encouraged by what it sees as improving conditions in the wholesale funding markets, and is due to launch and price a securitisation deal to be backed by mortgages from Lloyds TSB and Cheltenham & Gloucester at the end of this week.
Eric Daniels, group chief executive of Lloyds group, says: “The group is continuing to see positive trends, in line with our trading update in March.
“In particular, we have seen impairments slow significantly in the first few months of the year. This gives us confidence that we will achieve a better financial performance than we previously thought.”