Lloyds Banking Group made a loss of £3.5 billion last year after setting aside £3.2 billion to cover payment protection insurance claims.
In 2010 the bank made a pre-tax profit of £281 million.
The bank said last year that it was setting money to cover claims over loan repayment insurance for borrowers should they lose their job.
Lloyds also owns TSB and Halifax Bank of Scotland. It is 40% owned by the British taxpayer,
The bank is undergoing a wide-ranging reorganisation, which includes 15,000 job cuts and the disposal of 632 branches.
Lloyds is also cutting its international activities to 15 nations by 2014, compared with 30 currently.
The BBC reports shares in Lloyds fell after the results announcement.
Its share price was 63p when the government took over 43% of the company. But it was about half that, at 35p, in trading on Friday morning.