The pre-tax profits, equivalent to 2.6 billion euros or $3.6 billion, compared with a loss of £6.3 billion in 2009. Bad debt provisions dived to £13 billion, from £23 billion last time around, LBG added in a results statement.

The lender, which is 41-percent owned by the British government after a huge bailout, beat market expectations for pre-tax profit of £2.0 billion, according to Dow Jones Newswires.

"2010 was an important year for Lloyds Banking Group, marking our return to profitability, and a further reduction in risk in our business," said LBG Chief Executive Eric Daniels, delivering his final results at the helm of the group.

"Our significant progress in the year has positioned the group well to become the best bank in the UK for all our stakeholders, including our customers, shareholders and employees."

LBG, which is 41-percent state-owned after a huge bailout, added it had sharply cut its reliance on government and central bank funding to £97 billion by the end of 2010. That compared with £157 billion at the end of 2009.

Daniels, addressing journalists on a conference call, added that another £13 billion was repaid last month.

The results were published one day after Royal Bank of Scotland revealed that losses narrowed sharply last year to £1.125 billion pounds as bad debts also tumbled. RBS is 83-percent state-owned after a similar rescue at the height of the global financial crisis.

Lloyds was ravaged by its 2008 government-brokered takeover of Halifax Bank of Scotland (HBOS), which was plagued by toxic or high-risk property investments, particularly in Ireland.

The group added Friday that bad debts plunged despite a "deterioration" at some of its international activities.

At LBG's wealth and international division, pre-tax losses ballooned to £5.2 billion in 2010, compared with £3.3 billion the previous year. That was largely due to an enormous £4.3 bilion impairment charge in Ireland.

"Despite pain being incurred in Ireland, as was the case with RBS, and some additional difficulties in Australia, loan impairments showed a significant improvement over the previous year," said analyst Richard Hunter at Hargreaves Lansdown stockbrokers.

Earlier this month, Lloyds revealed that Daniels will receive a 2010 bonus of £1.45 million, deferred into shares and payable after three years.

Daniels steps down on Monday and will be replaced by Santander UK head Antonio Horta-Osorio.

"It has been an honour and privilege to have led Lloyds. The bank is in good shape and has a very strong trajectory," he told BBC Radio.

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