By Daniel Hunter

Annual results for Lloyds Banking Group for 2011 show a loss of £3.5 billion, owing largely due to the £3.2 billion set aside for payment protection insurance (PPI) claims.

This is a marked difference from 2010 when pre-tax profits were £281 million.

The bank said last year that it was setting money to cover claims over mis-sold PPI - loan repayment insurance for borrowers should they lose their job.

"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 eurozone," Lloyds' chief executive, Antonio Horta-Osorio, said in a statement.

With the large scale loss comes a downsizing of the bonus pool, down 30% from 2010 to £375 million.

The average bonus for each of its 100,000 staff will be £3,900.

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