A sign is seen outside a branch of Lloyds Bank in the City London February 3, 2014.

London - State-backed Lloyds Banking Group said it was ready to return to private ownership after reporting a pretax profit for the first time in three years.

Lloyds' Chief Executive Antonio Horta-Osorio has turned around the bank's fortunes since taking the helm in March 2011, slimming it down to focus on lending to UK households and businesses and meet tougher regulatory requirements on capital.

But the bank risked a political backlash by saying it paid out 395 million pounds in bonuses last year, up 8 percent on the previous year, including a 1.7 million award to Horta-Osorio.

His bonus will be paid in shares and is deferred for five years.

Rival Barclays has angered politicians and unions by increasing bonuses for its investment bankers by 13 percent.

Lloyds, 33 percent owned by the government, said on Thursday it made a statutory pretax profit of 415 million pounds ($688 million) for 2013, up from a loss of 606 million in 2012, and increased lending in Britain by 3 percent.

Horta-Osorio told reporters that the bank was now ready to return to full private ownership whenever Britain's finance ministry and UK Financial Investments, which manages the government's shares, decide it is right to do so.

“We absolutely consider ourselves back to normal. Its absolutely up to UKFI and the Treasury to decide how and when to dispose of those shares,” he said.

Lloyds needed a 20 billion pound bailout in the financial crisis which left taxpayers with a 39 percent stake.

Finance Minister George Osborne wants to sell the shares before the next election in 2015 and UKFI and the Treasury are assessing options for future sales.

The government kicked off the process with the sale of a 6 percent stake last September.

Banking and political sources say the most likely scenario is a second sale of Lloyds' shares to institutions such as pension funds and insurers in March or April followed by a larger retail offering later in the year.

Shares in Lloyds, which have more than doubled over the past two years, were down 3 percent at 10:33 SA time as analysts anticipated a possible stock overhang as the government share sale approaches.

“(The) investment case is unaltered. However, (Lloyds) shares may flat-line ahead of any government placing,” Numis analyst Mike Trippitt said.

The bank confirmed its underlying profit more than doubled to 6.2 billion pounds, as announced earlier this month.

Lloyds said it expected to apply to the regulator in the second half of this year to restart dividends, which would boost the prospect of further stake sales. It last paid a dividend in 2008.

Horta-Osorio said he expects to pay out at least half of Lloyds' earnings in dividends over the medium term.

The bank took 3.5 billion pounds more in provisions last year to compensate customers for past mis-selling, but said its core capital increased to 10.3 percent.

Lloyds said its net interest margin jumped to 2.29 percent in the fourth quarter and was 2.12 per cent for the year from 1.93 percent in 2012.

The interest margin is the difference between the interest it receives on loans and what it pays for deposits and is a key driver of earnings. - Reuters