Lloyds Banking Group losses were 'expected'

Lloyds Banking Group has reported a loss of £3.5bn for 2011.

The biggest contributor to the loss was the £3.2bn cost of compensating customers mis-sold PPI credit insurance.

However, the bank did beat its Project Merlin targets and increased net business lending by 3%, compared with a decline in the combined lending of Britain's top five banks.

Peter McNamara, the former managing director of Alliance & Leicester, said customers are also starting to save more - which affects the bank's balance sheet.