The boss of Lloyds Banking Group left taxpayers wondering when they will get their money back as he warned the state-backed lender would be squeezed further in 2012.

After unveiling a £3.5 billion loss for 2011, chief executive Antonio Horta-Osorio said the part-nationalised lender would come under pressure this year as a weak economy, heavier regulation and political interference rocked the sector.

But the Portuguese banker, who recently waived his annual bonus after an extended period of sick leave, said the bank was “in a significantly stronger position than it was 12 months ago” and would offset lower income with additional savings.

The 40 per cent state-owned bank saw shares slide 2 per cent to 35.98p - a little over half the 63p price tag paid by the Government for its stake in the throes of the financial crisis.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “Following on from RBS, Lloyds is another work in progress, making some headway but still with much to do.”

The £3.5 billion loss, which compares with a £281 million profit the previous year and was driven by a £3.2 billion hit to tackle the payment protection insurance scandal, came as the bank unveiled a £375 million bonus pool, down 30 per cent against 2010. The average bonus was £3,900 for each of its 100,000 staff.

However, stripping out the PPI charge and other one-off costs, the bank made a £2.7 billion profit in 2011, up 21 per cent on the same measure in the previous year.

Lloyds said its income slipped 10 per cent to £21.1 billion, but it slashed its bad debt charges by 26 per cent to £9.8 billion.

Mr Horta-Osorio reiterated earlier warnings that the bank expects its income-related targets to be delayed as a result of the weaker-than expected economic outlook.

In a particularly gloomy assessment of the outlook, the bank said it expected income to be lower in 2012, as demand for lending remains subdued and interest rates stay at record low levels for some time to come.

Mr Horta-Osorio said he expects “a subdued economy, continued high levels of regulatory scrutiny and political uncertainty” in the banking sector as well as ongoing instability in the eurozone.

The bank’s combined exposure to troubled eurozone countries Portugal, Ireland, Italy, Greece and Spain totalled £25 billion, of which £16 billion related to Ireland.

However, Lloyds expects a further reduction in costs, and a similar percentage reduction in bad debts in 2012 as seen in 2011, as a result of improved asset quality across the group, particularly in its overseas markets, which it has pledged to cut.

The lender said it expected to increase cost savings by a further £200 million - but insisted this would not involve any additional job losses to the 15,000 already announced last year.

Lloyds said last year it beat its Project Merlin targets, after it provided £45 billion of gross lending to UK businesses, of which £12.5 billion was to small and medium-sized enterprises (SMEs).

The retail - or high street - bank saw net income slide 13 per cent to £7.4 billion as demand for lending remained subdued and competition for deposits increased.

The group said it advanced more than £15.5 billion of new mortgages to more than 124,000 customers buying a home in the UK in 2011.