BAILED-out Lloyds Banking Group, which includes Halifax and Bank of Scotland, has reported its highest annual profit in a decade as it prepares to return to full private ownership.

Bottom line profits at the taxpayer-backed lender more than doubled to £4.24 billion last year, partly due to lower PPI compensation payouts. The result marks its best performance at the UK’s biggest retail banking group since 2006.

Pay for chief executive Antonio Horta-Osorio was also reduced from £8.7 million to £5.5m last year in the wake of the Brexit result, which hit the company’s stock and affected his overall package.

The government put £20.3b into the banking group, acquiring a 43 per cent stake to save it from collapse at the height of the financial crisis.

This has now reduced to less than five per cent following a series of share sales and the government has indicated that it aims to shed its remaining stake this year.

Less than £19b of the public’s money has been returned so far.

Announcing the results, Lloyds shares jumped 3.6 per cent and the group said its performance was “inextricably linked to the health of the UK economy, which has been more resilient than the market expected” since the referendum on EU membership.

Horta-Osorio said: “The UK’s decision to leave the European Union means the exact nature of our relationship with Europe going forward remains unclear and the economic outlook is uncertain.

“However, the recovery in recent years with low unemployment, reduced levels of household and corporate indebtedness and increased house prices means the UK is well positioned.”

Horta-Osorio’s pay package dropped as the incentive pay out fell from £5.18m in 2015 to £1.58m last year. However, his short-term bonus went up from £850,000 to £1.2m and his base salary will increase by eight per cent this year to £1.2m, the first raise since he joined in 2011.

The group has boosted its total bonus pool to £392.9 million.

The changes come after underlying profits for 2016 fell to £7.9b and total income slipped to £17.5b. As well as assigning £1b for PPI claims in the third quarter, the group also set aside another £1.1b to cover additional “conduct” issues.

Chairman Lord Blackwell said: “Our approach to reward aims to provide a clear link between remuneration and delivery of the group’s key strategic objectives, namely, becoming the best bank for customers whilst delivering long-term, superior and sustainable returns to shareholders.

“The progressive return of the group to private ownership, the resumption of dividends since 2014 and our strong capital and balance sheet position are testament to the hard work of all colleagues to transform and simplify our business.”

Responding to the results, Richard Hunter, head of research at Wilson King Investment Management, said the group was making a “robust recovery”, with its chief executive turning Britain’s biggest mortgage lender into “something of a modern day success story”.

However, he cautioned: “Challenges will follow as the UK consumer is showing some early signs of retrenchment.

“Historically low interest rates will also continue to provide a difficult backdrop for banks in general, whilst the cost of regulation, let alone any further fines darkening the picture, will be a necessary cost of doing business.”