By Max Colchester 

LONDON-- Lloyds Banking Group PLC on Friday said it would pay its first dividend since it was bailed out during the financial crisis, as the U.K. lender returned to a full-year profit.

The Lloyds board received clearance from regulators to recommend a dividend of 0.75 pence a share for 2014.

The bank, which is 23.9% owned by the U.K. government, said it swung to a GBP1.13 billion ($1.74 billion) net profit for 2014, compared with a loss of GBP838 million a year earlier. Total income, excluding insurance claims, came to GBP18.37 billion, buoyed by an improving British economy. The bank's underlying profit, which strips out a number of one-off items, came in at GBP7.8 billion for the year, compared with GBP6.2 billion a year earlier.

Lloyds Chief Executive Antonio Horta-Osorio hailed the proposed dividend payment as a symbol of the bank's return to normality following a traumatic few years. "Over the last four years we have transformed Lloyds Banking Group into a low cost, low risk U.K. focused retail and commercial bank," he said.

Lloyds was bailed out following a shotgun merger with teetering mortgage giant HBOS. It has since slashed its balance sheet and a refocused on its British activities. The U.K. government has been able to gradually reduce its holdings in the lender from around 40%. The proposed dividend will return GBP130 million to the U.K. government.

However, problems continue to haunt the lender. The bank said it put aside GBP1.8 billion in the last quarter to compensate customers who were wrongfully sold payment protection insurance.

Write to Max Colchester at max.colchester@wsj.com

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