Lloyds Banking Group said 2012 revenues would fall and pushed back a key financial target as the part state-owned bank joined rival Royal Bank of Scotland in posting a hefty loss for 2011.
Lloyds, 40 per cent owned by the Government after a state bailout during the 2008 financial crisis, reported an annual loss of £3.54bn, having made a profit of £281m in 2010.
“We expect the external environment to remain challenging in 2012, with a subdued economy, continued high levels of regulatory scrutiny and political uncertainty relating to the banking sector, and the continued potential for downside effects from financial market volatility and instability in the euro zone,” said chief executive Antonio Horta-Osorio.
Lloyds took a £3.2bn hit to compensate customers for the mis-selling of payment protection insurance.
The lender, which owns Halifax Bank of Scotland, forecast income would fall further this year, after dropping 10 per cent in 2011 to £21.2bn.
Its banking net interest margin would drop to near 1.93 per cent after falling 14 basis points to 2.07 per cent in 2011 due to high funding costs, it added.
Mr Horta-Osorio, who joined Lloyds at the start of last year, said 2011 was a year of transition for the bank as it attempts to strengthen its balance sheet, decrease risk and cut costs.
Mr Horta-Osorio pushed back his targets to boost income and profitability to later than 2014, but said all of the medium-term targets he set in a review in June are achievable.
More positively, bad debts at the bank fell 26 per cent on the year to £8.1bn, with another £3.2bn of losses on Irish loans.