The bank, 43% owned by the taxpayer, has released a trading statement this morning announcing its return to profit thanks to a slow-down in the level of its bad debts.
Lloyds group says it has seen lower impairments across its retail secured and unsecured lending portfolios.
The level of impairments for its wholesale division have also dropped sharply compared to both the previous quarter and the bank’s own expectations for the first three months of this year.
Although lending has remained flat during Q1, customer deposits have grown over the same period by over £5bn.
The bank says that assets within its run-off portfolios are continuing to reduce, though it admits this is at a slower pace than last year.
It is encouraged by what it sees as improving conditions in the wholesale funding markets, and is due to launch and price a securitisation deal backed by mortgages from Lloyds TSB and Cheltenham & Gloucester at the end of this week.
Eric Daniels, group chief executive at Lloyds Banking Group, says: “The group is continuing to see positive trends in line with our recent trading update on March 19 2010.
“In particular, impairments have slowed significantly in the first few months of the year giving us confidence that we will achieve a better financial performance than previously guided.
“I am pleased to report that we returned to profitability in the first quarter and expect this momentum to be sustained throughout 2010.”
Based on the first 10 weeks of the year, Lloyds group put out an earlier trading statement in March saying it was confident that the bank would return to profit this year.