Lloyds insists it is working hard to help businesses

City cheers as part-nationalised lender beats forecasts with £1.6bn profits better than forecast £1.6bn profits

Lloyds banking Group insisted it was doing its best to support small businesses as the part-nationalised lender said it had turned a £3.9bn loss in the first half of 2009 into a £1.6bn profit this time around.

The results, driven by a halving of bad debts to £6.5bn, pleased the City and the shares gained 2.57p to 74.49p, making Lloyds the FTSE 100's biggest riser yesterday in percentage terms.

The chief executive, Eric Daniels, defended the bank against claims that it was not doing enough to help small businesses, whose continued health will be crucial if Britain's shaky economic recovery is to prove sustainable. Both the Chancellor, George Osborne, and the Business Secretary, Vince Cable, have demanded that banks do more.

Mr Daniels said: "We have been supporting our customers. Eight out of 10 applications [for business loans] are being approved but, at the same time, if you look at absolute loan applications they are 25 per cent down. We cannot force customers to take loans but we can very much make credit available."

He said Lloyds' customers opened 60,000 small-business accounts in the first half, putting it ahead of its target of helping 100,000 enterprises start up each year until 2012. However, he refused to put a figure on net lending, saying: "It's broadly flat."

Mr Daniels also rejected criticism that many small and medium-sized enterprises (SMEs) found applying to Lloyds for loans too intrusive. The bank needed to get a handle on its customers' ability to repay at a time of economic uncertainty, he insisted.

Lloyds said it lent £23.7bn gross to businesses in the first six months, of which £5.7bn went to SMEs. It also extended £14.9bn gross of new mortgages, including £2.5bn to first-time buyers. Unusually, at a time when markets are being squeezed, the bank's net interest margin – the difference between what it pays on deposits and receives from lending – increased to 2.08 per cent from 1.72 per cent. Lloyds said this was because many mortgage customers were switching from fixed-rate deals to the bank's standard variable rate. It is currently cheaper than most fixes but also offers better margins to the bank.

Mr Daniels said Lloyds was on track to make savings of £2bn by 2011, and that putting Lloyds together with HBOS – what he called "the most complex integration ever attempted" – was going well. More than 16,000 jobs have gone, with most of the staff affected transferred to other roles. A similar number of job losses over the next year would be no surprise, although Lloyds would not comment yesterday.

Cath Speight, the national officer of the Unite union, said: "Unite welcomes the positive [financial] results today, although we must not forget that since the formation of the bank there have been over 16,000 jobs lost, and those who hold the key to the success of the bank continue to face insecurity and uncertainty about their futures because of the sale of bank branches.

"Employees have also suffered as Lloyds severely curtailed their future pension benefits. These profits are only possible because of the staff who have worked tirelessly in extremely difficult circumstances."

Lloyds must offload 600 branches to comply with the demands of EU regulators, but it is only looking to do so once the integration of HBOS is complete. "We are adding value to those branches all the time," Mr Daniels said. "Now is not the best time to sell."

Giving a rosy assessment of Britain's economy, which he expects to grow by 1.3 per cent this year and 2.1 per cent in 2011, the chief executive said he was confident enough to upgrade guidance on how the bank would perform. He predicted growth of between 6 per cent and 7 per cent a year, and a return on equity of above 15 per cent.

In the first half, Lloyds – which is 41 per cent owned by the taxpayer – repaid £25bn of central bank funding advanced during the credit crisis. A further £132bn remains, most of which must be repaid within two years. But the finance director, Tim Tookey, said the disposal of £117bn of non-core assets would help to plug the gap.

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