Sir Victor Blank is to step down as chairman of Lloyds Banking Group by June 2010. Following a meeting with the board, Sir Victor said it was "the right time for the Group to appoint a new chairman".

Both Sir Victor and Eric Daniels, Lloyds' chief executive, have faced criticism for their decision last year to buy HBOS, a deal in which Daniels describes Sir Victor as having played a very important role, "during a period of significant change for our company and at a time when there has been unprecedented volatility in the markets".

Lord Leitch, who has been appointed deputy chairman, said the board was "very sad" at the decision. He insisted the board "was unanimous in wanting Sir Victor to seek re-election as chairman for another three years. Sir Victor is a first-class chairman,” continued Lord Leitch, “and we are delighted that he will continue with us to ensure an orderly succession and the continued integration."

Sir Victor's departure comes as Lloyds' board attempts to finalise the details of a plan to insure about £260bn of bad loans with the taxpayer. The majority of those assets were taken on by Lloyds as part of the HBOS merger following massive investments in commercial property by the Yorkshire-based bank. The decision to seek a replacement for Sir Victor is likely to heap further pressure on Prime Minister Gordon Brown, who helped secure the merger of Lloyds TSB and HBOS by assuring Sir Victor at a cocktail party last September that a deal would not face competition obstacles; sources insist Sir Victor continues to enjoy the confidence of Mr Brown and other senior ministers.

Lloyds last month announced it is to cut 985 jobs at a business offering car finance over the next two years, the first major job losses from the merger. The government backed the Lloyds takeover of HBOS last September, bypassing normal competition rules to avoid the collapse of the Halifax owner. Shares in the bank have dropped by 27% so far this year.