The 24% rise in Lloyds Banking Group shares this year following the 85% rise in 2012 shows the bank's return to the private sector and the resumption of dividends is getting closer, shareholders have been told.

As the bank's shares hit a two-year high of 61p yesterday, chairman Sir Win Bischoff told the annual meeting in Edinburgh the prospects of a sale of the taxpayer's 39% stake have improved with the bank's return to profit, and dividends will be restarted "as soon as we are able". He added: "We fully understand the difficulties their absence is causing shareholders."

But he said the timing could now be affected by "regulatory requirements" on capital which was prompting the bank, like RBS on Tuesday, to seek shareholder approval for the potential future issue of convertible instruments.

Sir Win, presiding for the last time ahead of his retirement, said: "We remain committed to operating as a wholly privately owned group, which is profitable, self-supporting and dividend paying."

On the flotation of the 630 TSB branches, including 180 in Scotland, following the collapse of the sale to the Co-op, the chairman said the bank had "maintained this option throughout the process in order to ensure best value for our shareholders and certainty for customers and colleagues", and the new bank would be an "effective challenger in the UK's retail banking industry".

Antonio Horta-Osorio, the chief executive, said the bank was ahead of plan in its three to five-year turnaround, and had been rated best in the high street for customer service in a major survey.

He said the 24% share price uplift compared with a 13% rise in the FTSE 100 so far this year, adding: "I accept this is still a long way from the bank's historic share price, but it does demonstrate we are heading in the right direction and our strategic plan is getting results."

The chairman said last year's performance justified Mr Horta-Osorio's "annual performance reward of £1,485,000" which was, however, payable in shares and deferred for five years. He said the board was "extremely mindful both of the economic outlook and of the views of shareholders", and that despite substantially better results, the bonus pool had been reduced in 2012 by 3%, and the long-term incentive plan had not paid out for the fourth successive year.

But small shareholders appeared no more satisfied than in the past over the share of the bank's returns being taken by management.

David Harrison said bonuses of 25% were "appallingly high" and the money could have been used to pay back the Government and speed up the return of dividends.

Sir Win said bonuses had cost £1.2 billion over three years, but hoped that once dividends resumed "this whole question will not have quite the same relevance".

Shareholder Keith Elliott said he had evidence the bank was working with the insolvency industry, passing on inside information about customers, and "plundering com-panies using underhand tactics". He cited a decision by RBS to ensure firms appointed by the bank to conduct reviews were not then able to accept an administration appointment, to avoid conflicts of interest, and asked whether Lloyds would now adopt the same policy.

"We will consider the point you made, I don't know what the procedure is," Sir Win responded.

Mr Horta-Osorio told another shareholder the bank no longer had more than 200 subsidiaries listed in tax havens, as the recent press report identifying such activities related to 2011, since when Lloyds had actively closed many such entities, and it expected to hold no more than 15 in the future.