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Lloyds Banking Group LLOY.LN +2.48% said Wednesday that it is confident it can strengthen its capital position as demanded by the U.K. regulator without issuing new shares or being forced to convert bonds into shares.

The Prudential Regulation Authority, a successor to the Financial Services Authority, is conducting talks with all U.K. banks after the Bank of England's Financial Policy Committee estimated there was a £25 billion ($37.9 billion) capital shortfall across the sector.

Though Lloyds didn't disclose the size of the shortfall determined by the PRA, the announcement by 39% state-owned Lloyds was the first by a U.K. bank as part of the regulator's review, and more are expected in the coming days.

"These additional capital requirements are expected to be met without recourse to further equity issuance or the utilization of additional contingent-capital securities," Lloyds said, referring to so-called CoCo bonds that convert to shares in times of financial stress.

The bank added that it is "confident in our capital position" and reiterated that its Core Tier 1 ratio should be above 9% at the end of this year and above 10% by the end of 2014.

The ratio is calculated based on the European Parliament's new capital reforms, referred to as CRD IV, designed to improve the banking sector's ability to absorb shocks arising from financial or economic stress.

Lloyds and 81% state-owned Royal Bank of Scotland Group RBS.LN +0.88% PLC have been cutting costs and restructuring their businesses in preparation for a return to private ownership. Getting a clean bill of health from the regulator is a key hurdle the banks must pass to return to full independence.

At its annual shareholder meeting last week, Lloyds Chief Executive António Horta-Osório said he expected the bank to post a profit this year and increase lending despite a subdued economy. The possibility of a government share sale "has been enhanced" by the bank's recent financial performance, Chairman Win Bischoff said.

Lloyds shares opened higher Wednesday and reached 63 pence in early trade, just above the 61 pence price that the government holds the stake on its books. Analyst have speculated that the U.K. government may want to sell down part of its investment before the 2015 election.