Lloyds Banking Group boss Eric Daniels will retire from the part-nationalised bank in a year's time.  

The shock announcement ends months of speculation as to when the 60-year-old chief executive will step down from the UK's largest retail bank. 

Daniels, who has been at the helm of the bank since June 2003, has come in for heavy criticism for his part in the bank's shotgun marriage to HBOS in September 2008. This led to the bank requiring a £20 billion injection of taxpayer cash to keep it afloat.

Lloyds says it will begin the search for his successor and will consider candidates from inside and outside the company as well as on an international basis. Daniels has agreed to remain in the job until the search process has been successfully completed.

Daniels says: 'It has been a tremendous honour and a privilege to lead our many talented and dedicated people over the last seven years. I am grateful to have been given the opportunity to create the new group and to set Lloyds well on its way to becoming the best bank for all our stakeholders including our customers, shareholders and employees.'

In May, Daniels' future at Lloyds was cast into doubt after it emerged that chairman Sir Win Bischoff had sounded out Lord Davies of Abersoch, a former boss of Standard Chartered, about taking on the top role. However, Lord Davies turned down the role.

Analysts said the market was open as to who will replace Daniels.

Names in the frame include the chief executive of Nationwide Graham Beale, HSBC's  finance director Douglas Flint and Fritz Seegers, who was previously head of domestic banking at Barclays.

The bank, which is 41 per cent owned by the government, reported a return to profit for the first half of the year in August.

Pre-tax profit for the six months to the end of June came in at £1.6 billion, compared with loss of £4 billion in the same period last year. This was largely due to a drop in impairments which fell from £13.4 billion to £6.5 billion.

Daniels' departure marks a further shake-up in senior level management in the UK banking sector. Earlier in September, it was announced that Barclays' investment banking boss Bob Diamond will succeed current chief executive John Varley.

In July 2009, Lloyds got a new chairman in the shape of Sir Win Bischoff.