Surge in Lloyds shares puts it above Osborne's sell-off target

But Chancellor insists he will not be rushed into returning bank to full public ownership

Lloyds Banking Group said yesterday it had surged back into the black, sending its shares above the Government's target sell-off price and within a hair's breadth of the "true" price required for taxpayers to make a profit on the bank's bailout.

The stock closed up 5p at 73.51p, close to the 73.6p at which the Government bought in and well in excess of George Osborne's target sell-off price of at least 61p.

The price rise was driven by the bank's reporting of a £2.1bn profit for the six months to the end of June, bouncing back from a £456m loss for the same period last year. Lloyds also cheered analysts by reporting a rise in its "net interest margin" – the difference between what it charges borrowers and pays depositors. It expects this to hit 2.1 per cent by the end of the year.

Underlying profit, another key measure for the City, nearly trebled from £1bn to £2.9bn.

"We have enabled the Government to begin the process of delivering the group back to full public ownership," said the chief executive, Antonio Horta-Osorio, whose bonus is linked to a successful sale of the bank.

However, the Chancellor has insisted he will not be rushed. Critics feel Mr Osborne's target price is far too low and there is no reason for him to sell until the taxpayer is firmly in profit. The 61p level represents the average market price on the days when the Government bought in at 73.6p, and the difference has already been booked as a loss and added to the national debt.

Meanwhile, Lloyds said its TSB brand would return to Britain's high streets next month. It will be the trading name for a 631-branch chain to be backed with a £30m marketing push with its own chairman and board ahead of a planned flotation. Lloyds is also planning to start immediate talks with the Government and regulators over restoring dividend payments – another key step towards privatisation – although it will probably have to pay up to remove the "dividend block" in place since the state's bailout.

Lloyds has not suffered anything like the problems faced by Barclays since the Bank of England demanded that all British banks strengthen their capital bases far more quickly than international agreements demand – a process which has infuriated many bankers and some analysts.

George Culmer, the finance director at Lloyds, said yesterday: "They [the Bank of England] are trying to move the sector to a better place which is good; how they went about it is somewhat strange."

Lloyds, however, stressed that both sides were "finding their way" under a new set-up and it was "committed to building a good and constructive relationship with the regulator under these new arrangements, as is already seen happening in practice in the recent discussions about 2013 capital requirements".

Despite a generally upbeat response to the results, there was still a substantial sting in the tail as Lloyds's provisions for payment-protection insurance (PPI) compensation were raised yet again. Its £500m charge takes the total it has put aside to £7.3bn – almost half of the £15.2bn total incurred so far by the "big four" high-street banks – and it includes an extra £50m for dealing with the Financial Conduct Authority's investigation into how Lloyds handled PPI complaints.

But Mr Horta-Osorio said Lloyds had made great progress on the strategy he outlined two years ago, adding: "We are delivering quarter-on-quarter improvement in a sustainable and boring way – like a good retail and commercial bank should."

Ian Gordon, an analyst at Investec, predicted that Lloyds would offer a "token" dividend of 1p early next year. He said investors would draw "considerable encouragement" from suggestions of a quick privatisation but believes the shares are over priced.