Lloyds Banking Group reported a £3.5 billion (€4.1 billion) loss for 2011, but losses related to Irish loans fell, the group said today.

Impairment charges on Irish loans fell to £3.19 billion in 2011 from £4.26 billion in the previous year.

"Following higher charges in 2010, especially in the fourth quarter as the economic environment in Ireland deteriorated, the rate of impaired loan migration has slowed," Lloyds said in a statement.

But while the overall charge is down, an increase in impaired loans in Lloyds' wealth and international division "predominantly relates to the group's non-core book in Ireland where impaired loans increased by £1.9 billion during 2011 reflecting ongoing difficulties in the economy", the bank said.

Lloyds has a total of £17.7 billion in Irish wholesale loans, some 84.3 per cent of which are classed as impaired at the end of 2011. Just over 20 per cent of its Irish retail book, worth £7 billion, was impaired.

The group reported an annual loss of £3.54 billion, from a £281 million profit 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," chief executive Antonio Horta-Osorio said.

The group said 2012 revenue would fall and pushed back a key financial target as the part state-owned British bank joined rival Royal Bank of Scotland in posting a hefty loss for 2011.

Lloyds is 40 per cent owned by the British government after a state bailout during the 2008 financial crisis.

Additional reporting: Agencies