TAXPAYER backed bank Lloyds is set to make its first payment to shareholders in seven years.

Lloyds, which is facing a lawsuit over its emergency takeover of Halifax Bank of Scotland (HBoS) in 2008, is expected to make its first payment to shareholders this week in a watershed moment for the bank. It was saved from collapse following the disastrous HBoS buyout with a £20 billion bailout from taxpayers.

The Prudential Regulation Authority (PRA), an arm of the Bank of England, is likely to approve a £700 million dividend by Lloyds - equivalent to 1p per share - in the next few days.

It is the fist time it has paid a dividend since February 2008, and will translate into a £175m windfall for Government thanks to taxpayers' 25 per cent stake.

However, there is likely to be controversy as both Lloyds and the Royal Bank of Scotland, also taxpayer-backed, prepare to shell out millions to senior management.

RBS is expected to pay a £1m "allowance" to chief executive Ross McEwan as part of a scheme designed to skirt new rules that cap banker bonuses.

Stephen Hester, Mr McEwan's predecessor in the job, was forced to give up similar payments. There has been no bonus paid to an RBS chief executive since Mr Hester received £2m in 2010.

RBS's bonus pool is expected to total around £500m, but hopes of a return to profit will be extinguished by a big write-down on the sale of Citizens Bank in America, which is expected to wipe out an operating profit of £4bn.

Meanwhile, Lloyds is preparing to unveil a controversial £30m package of payments to senior managers, including £7m for chief executive Antonio Horta-Osario.