Banking behemoth Lloyds Banking Group posted a loss of £3.86 billion for the nine months to the end of September as a £3.2 billion provision for payment protection insurance rocked its finances.

The results are in sharp contrast to the £1.97 billion profit the FTSE 100-listed firm clocked up in the same period last year.

Despite this, Lloyds said it expected to deliver on the financial performance targets incorporated within 2011 guidance.

The bank, which is 41 per cent-owned by the taxpayer, also reported a 15 per cent drop in total income to £15.5 billion, though there was better news on the impairment charge front, as these fell significantly from £9.4 billion to £7.4 billion in the nine-month period.

Lloyds also warned that, while it was maintaining its financial targets, the delivery of medium-term targets could be delayed if 'weak economic conditions persist'.

Standing in for erstwhile chief António Horta-Osório, the bank's interim group chief executive and finance director Tim Tookey, remained optimistic.

He commented: 'Although the UK economic environment has weakened in the third quarter, the flexibility in our strategic plan has allowed us to further improve our customer propositions, continue the reduction in our risk profile, strengthen our balance sheet and reduce costs.

'Over time, we believe our strategy will realise the full potential of our organisation for customers and shareholders.'

The bank's total income, discounting volatility effects, the impact of liability management exercises and net losses on asset sales, dropped by 9 per cent to £16.095 billion, reflecting subdued lending demand, continued customer deleveraging and a lower banking net interest margin.

Banking net interest margin was down slightly at 2.1 per cent year-to-date, with increased funding costs partially offset by the benefit of asset repricing and funding mix giving high confidence of achieving full-year guidance.

Operating expenses at the group were 3 per cent lower. Non-core assets reduced to £151.4 billion, down £11 billion in the quarter, and £42.3 billion year-to-date.

Lloyds now finds its self in unfortunate asymmetry to rival Royal Bank of Scotland (RBS) which last week posted pre-tax profit of £2.004 billion in the third quarter after turning around from a £1.56 billion loss at the same point in 2010.

Although shares were buoyant following the update, analysts at Daniel Stewart issued a damning verdict: 'We see no need to own this stock'.

In contrast, Evolution Securities' Ian Gordon reiterated his 'buy' recommendation on Lloyds and believes it's time for a little perspective on the stock.

'For all the hyperbole, today's statement is hardly worse than expected – third-quarter net interest margin of 2.05 per cent is (as promised two weeks ago) consistent with guidance given in August – despite the headwind of sharply rising short-term wholesale funding costs,' he noted.

He added: 'Every dog has its day, 3 November 2011, we are hardly the greatest admirers of Lloyds, yet for all its many faults, we see a clear value opportunity at current levels.'

This was written for our sister website, Interactive Investor