António Horta-Osório

The bank, which is the UK’s largest mortgage lender said mortgage lending rose by £3.5bn in the third quarter of this year, as it processed the highest number of applications since 2008.

However, Lloyds posted a 16% drop in net interest income to £2.6bn after the Bank of England cut UK interest rates to a record low of 0.1% in March.

Banking analysts had expected the bank to post profits of £588m. In the same period last year, the bank posted £50m profits as it was hit by the PPI scandal.

Lloyds has allocated a further £301m to over potential bad COVID-19 loans - an amount which was less than half the amount analysts had expected. This provision brings Lloyds’ total COVID impairment charge to £4.1bn for the first nine months of 2020. The bank now expected the full-year total to be at the lower end of the £4.5bn-£5.5bn it predicted in July.

António Horta-Osório, the bank’s chief executive, said: “Although our performance has clearly been impacted by the pandemic and the associated challenging economic environment, I am pleased that we are now seeing an encouraging business recovery and, with impairments significantly lower, a return to profitability in the third quarter.”

Lloyds announced earlier this week that its staff will be told to work from home until at least spring next year to reduce the spread of COVID-19.

Commenting on the COVID-19 crisis, Mr Horta-Osório added: “Once again I would like to express my gratitude to all of my colleagues whose dedication and hard work ensures that we continue to deliver vital services to our customers and communities, while supporting those most in need throughout the pandemic.”

Lloyds shares rose 2.5% in morning trading to 28.36p.