The British government said on Thursday it has further reduced its stake in Lloyds Banking Group, a day after the bank posted its highest profit since before the 2007-2009 global financial crisis.

UK Financial Investments, which manages the government's stake in the lender, said in a statement it has reduced its stake in the bank to 3.89 per cent.

Lloyds, which was rescued with a £20.5bn taxpayer bailout, is close to a complete recovery from its crisis-era past after more than doubling its profit last year and setting aside a lower amount to cover misconduct issues.

The bank has paid more than £17bn in compensation to customers wrongly sold PPI. The long-running scandal now appears to be drawing to a close.

At the current sell down rate, Lloyds should be fully returned to private ownership by May.

The Government still holds a more than 70 per cent stake in Royal Bank of Scotland, which has been hit by a string of charges and scandals that have suppressed the share price and made an imminent disposal look unlikely.