Lloyds Banking Group (LBG) has capped a bad week for Britain's state-rescued lenders by announcing losses of billions of pounds due to huge compensation payouts and euro zone debt exposure.

A day after Royal Bank of Scotland (RBS) said its annual net losses had almost doubled, LBG reported that its loss after tax ballooned to £2.78 billion ($4.38 billion) in 2011 from £320 million in 2010.

The part-nationalised banks meanwhile warned investors to expect further troubles in 2012, increasing the likelihood that it could be some time before the government seeks to offload its huge stakes in the lenders.

'We expect income to be lower than in 2011 given the economic outlook,' LBG said yesterday after the bank, 40 per cent owned by the British government, also announced a pre-tax loss of £3.54bn for last year.

Lloyds took a £3.2bn hit after being forced to compensate clients who were mis-sold payment protection insurance.

British banks last year lost a high court appeal against tighter regulation of PPI, which provides insurance for consumers should they fail to meet repayments on a credit product such as loans, mortgages or payment cards.

Stripping out the compensation payouts and other losses linked to the euro zone debt crisis, LBG's pre-tax profit rose by a fifth to £2.69bn.

'The core business delivered a resilient performance,' said LBG chief executive Antonio Horta-Osorio, who took a two-month break at the end of 2011 due to fatigue. That prompted the Portuguese national to decline his annual bonus amid British public outrage over excessive pay at state-rescued banks.

LBG said it had slashed its total bonus pool by 30pc to £375m and announced it was clawing back some executive bonuses over the PPI claims.

Lloyds has slashed more than 40,000 posts since 2009 as it looks to nurse its way back to health after its part-nationalisation at the height of the global financial crisis.

The lender, which was sunk by the ill-fated 2008 takeover of rival bank HBOS, is also cutting its international activities to 15 nations by 2014, compared with the current 30.

LBG and RBS 'are very much a work in progress and, for the moment, the outlook remains challenging,' said Hargreaves Lansdown Stockbrokers head of equities Richard Hunter.

'Obviously it is impossible to predict a timescale' for the taxpayer to get the money back, he said. 'The likelihood of either share price reaching 'breakeven' point seems low in the short- to medium-term.'

LBG and RBS have together received a staggering £65bn of British state money since 2008.

RBS has said its net losses had widened to almost £2bn in 2011, hit by the Greek debt crisis, restructuring costs and compensation, suffering its fourth successive year deep in the red.-Reuters