LONDON (AP) - Lloyds Banking Group, Britain's largest retail banker, yesterday reported "good" income growth in the third quarter thanks to fewer bad loan charges, and said it expects to achieve its full-year targets.

In a trading update which did not include earnings figures, the part-nationalised bank said it expects to achieve savings of £1.3 billion ($2.09 billion) this year from combining operations.

"We have delivered good underlying income growth in our core businesses, lower costs through continued strong integration delivery, and remain on track to deliver moderately lower impairments at a group level in the second half of the year," the bank said.

Shares were down two percent at 68.18 pence at midday on the London Stock Exchange.

Nic Clarke, analyst at Charles Stanley & Co., commended Lloyds for improving its earnings but was cautious about the outlook.

"We remain concerned about the negative impact that Ireland is having and despite good progress this year we believe the market still frets about the significant amount of wholesale funding that matures in the next couple of years and the potential impact that a weakening UK economy would have," Mr. Clarke said.

The bank reports earnings every six months, with its full-year results due on February 25.

Lloyds was created from the merger of Lloyds TSB and Halifax/Bank of Scotland in 2009, and then had to be bailed out by the British government. The government now owns 40.6 percent of its shares.

In the first half, Lloyds reported impairment charges of £6.55 million ($10.5 million), or half the figure for the first half of 2009. At the time, Lloyds said it expected further "moderate" improvement in impairments in the second half, guidance which it reaffirmed yesterday.