Britain's largest retail bank Lloyds expects to return to profit this year, increasing the UK government's chances of selling its stake before the next general election in 2015.

British Prime Minister David Cameron is keen to show that the country's part-nationalised banks are recovering from the financial crisis.

A sale of the 39% stake in Lloyds, at a profit, would allow him to claim at least partial success.

Lloyds is further ahead than Royal Bank of Scotland, 81%-owned by the government, in the battle to plug property-related losses and give taxpayers back the tens of billions of public funds used to bail the banks out in 2008.

"We expect us to return to profitability this year and to grow our core business, to realise our full potential to deliver strong, stable and sustainable returns for you, the shareholders, and to allow UK taxpayers' investment in the group to be repaid," chief executive Antonio Horta-Osorio told shareholders at the bank's annual general meeting in Edinburgh.

He said the bank would resume paying dividends "as soon as we are able".

Lloyds' executives declined to comment on the likely timing of a government share sale after the meeting, emphasising that it was a matter for the government and UK Financial Investments (UKFI), which manages the government's stake.

Chairman Win Bischoff told shareholders that the government should be able to start offloading its shares "over time".

Britain pumped £45.5 billion sterling into Royal Bank of Scotland and £20.5 billion into Lloyds to keep them and the rest of the banking system afloat in the aftermath of the collapse of US bank Lehman Brothers in 2008.

Both banks have shed hundreds of billions of pounds of assets and axed tens of thousands of jobs to cut their dependence on state aid. Lloyds made a pretax loss of £570m in 2012 and a £3.5 billion loss in 2011, hit by the cost of compensating customers mis-sold loan insurance.

But the bank said said the number of complaints from customers about payment protection insurance (PPI) was now declining.

"Once regulatory requirements have been clearly defined and we have prudently met them, and the financial position of the group and market conditions permit, it is our intention to recommence dividend payments," Bischoff said.

Britain's financial regulator said in March that UK banks must raise £25 billion of extra capital by the end of the year to absorb any future losses on loans. The regulator has not given specific guidance to banks but analysts expect Lloyds to be one of those banks facing a shortfall.

Bischoff said the bank was waiting to receive guidance from the regulator on its capital position but was confident of its strength.