Lloyds Banking Group profit figures are higher than expected at £1.6 billion, giving signs of a revival in fortunes for UK banks.

The Bank’s half-year surplus has been marked a “significant milestone” for the taxpayer-backed bank who made a £4 billion loss in 2009.

Lloyds Bank said the profits were a result of halving of bad debts. Bad debts were responsible for the massive loss during the financial crisis.

Nationalised Northern Rock onsaid the “bad bank” was back in profit and part-nationalised player Royal Bank of Scotland is also expected to announce profits when it reports on Friday. The banking sector’s return to health has increased the pressure on firms to increase lending to small businesses.

Lloyds Bankin Group is 41% owned by the taxpayer after a bail-out two years ago. The bank claims that it is ahead of its Government-set targets as gross lending to businesses reached £24 billion in the first half.

Chief executive Eric Daniels said despite borrowing rates being cheaper now than before the financial crisis, there was little appetite to borrow.

“Credit is available, but the demand simply isn’t there,” he said.

Prime Minister David Cameron met with Bank of England Governor Mervyn King on Wednesday when lending levels were likely to have been top of the agenda.