The results were at the top end of expectations, and analysts were impressed with the UK high street banking arm. Domestic net interest income rose 2 per cent, the first rise for three years.
Sir Brian Pitman, chief executive, said loan demand from small and medium- sized businesses was also picking up because of the economic recovery.
Lloyds is paying a final dividend of 18.3p, making 25.8p for 1994, up 17 per cent. Lloyds shares rose 10p to 560p and other high street banks followed with Barclays up 9p to 612p and NatWest 18p better at 508p.
Sir Brian said that the proposed acquisition of Cheltenham & Gloucester Building Society would transform the mortgage industry and leave Lloyds as one of the lowest-cost providers of mortgages.
Lloyds' mortgage lending rose 21 per cent in 1994 compared with a year earlier, despite a flat housing market. Its share of the mortgage market, together with that of C&G, will stand at about 6 per cent. Provisions against bad debts fell by 73 per cent to £135m, including a write-back of £240m third world debt provisions.
Sir Robin Ibbs, chairman, admitted that the bank faced "cross-fire". While the bank's trading surplus before bad debt provisions had fallen by 6 per cent certain people would still feel free to attack it for making excessive profits.
Sir Robin said the surplus fell for three reasons: in 1993 Lloyds had received an exceptionally large payment of back interest from Argentina; the 1993 boom markets for bonds had been replaced by a slump in 1994; and the bank had made a further £60m provision against possible redress for personal pensions.
As for accusations of excessive profits, Sir Robin said that this was "just untrue". Many charges had in fact gone down during the recession, while Lloyds had kept control of costs, which stayed flat this year.
The retail banking sector had one of the lowest returns in the market and needed to build up reserves in the good times so that risks could be covered in a future recession.
Sir Brian said he expected the number of staff to continue to fall through natural wastage, currently running at about 4 per cent a year. Lloyds shed about 2,000 jobs last year and will lose another 1,800 in 1995. It was one of the first banks to start shedding staff after the growth years of the 1980s.
Sir Brian said that UK banks employed 460,000 people in 1989, and had since lost 90,000. This process would continue.
Outlook, page 17