LONDON Lloyds Banking Group (LLOY.L) signalled a complete recovery from the financial crisis on Wednesday with its highest full-year profit in a decade, boosting the British government's ambition to return it to full private ownership in the next few months.
As the most exposed among the major British banks to any downturn in the British economy, with 97 percent of its business in the UK, Lloyds has confounded expectations that last year's vote to quit the European Union would squeeze profits.
Shares in Britain's biggest mortgage lender rose 3.8 percent by 0902 GMT, the best performing stock in the benchmark FTSE 100 index .FTSE after it said 2016 pretax profit was 4.2 billion pounds ($5.25 billion), more than double that in 2015.
"Our performance is inextricably linked to the health of the UK economy which has been more resilient than the market expected post referendum," Lloyds' Chief Executive Antonio Horta-Osorio said in a statement.
Lloyds, which was rescued in a 20.5 billion pound taxpayer bailout during the 2008 financial crisis, has since been hit by a series of scandals which has required meaty provisions.
The government has sold down its stake to less than five percent and at the rate at which it is selling shares Lloyds should be fully returned to private ownership by around May.
The higher profit in 2016 was driven by lower provisions to compensate customers mis-sold loan insurance after it set aside what it hopes will be a final 1 billion pounds.
Lloyds has so far set aside more than 17 billion pounds to pay customers back the cost of the insurance, more than any other bank, in Britain's costliest consumer scandal.
Although profit was higher and Lloyds said it would pay a total dividend of 3.05 pence, up 11 percent on last year, the bank's total income was slightly below last year and there was a 14 percent increase in bad loan charges in an early warning that some customers could be struggling with post-Brexit uncertainty.
"The overall picture is one of robust recovery for Lloyds," Richard Hunter, head of research at Wilson King Investment Management, said.
However, "the UK consumer is showing some early signs of retrenchment, which makes the rise in the impairment number a little more troubling," Hunter added.
And after years of deep job cuts and branch closures, Lloyds said it plans further cost cutting measures as it deals with the pressure of record-low interest rates.
Chief Financial Officer George Culmer said the bank is close to selecting Berlin as a European base to secure market access to the European Union when Britain leaves the bloc, confirming a Reuters report last week.
Horta-Osorio said Lloyds is not looking at any further acquisitions after the bank spent 1.9 billion pounds buying MBNA, a UK credit card business from Bank of America (BAC.N), in its first major acquisition since its bailout.
For customers who suffered in a 245 million pound fraud at a unit owned by Lloyds, there were questions over why the bank had not set aside any money to repay them, despite promises to review their cases.
Last month six people were jailed for a scam that involved siphoning off money from struggling businesses.
"That no provision appears to have been made make us wonder how seriously Lloyds' board ... are taking this," Nikki Turner, who was a victim of the scam, said.
Horta-Osorio told reporters the bank will ensure customers are compensated where appropriate.
($1 = 0.8005 pounds)
(Editing by Alexander Smith)