Sir Victor Blank will retire as chairman of Lloyds Banking Group before the firm's annual meeting next year.
Sir Victor said it was "the right time for the group to appoint a new chairman". He has faced criticism over Lloyds' takeover of ailing HBOS last autumn.
Lloyds was a conservatively-run bank known for its strong dividend payouts and risk controls before its decision to rescue HBOS. Lloyds will be loss-making this year as a result of soaring bad debts at HBOS
Sir Victor said he “will continue working until my successor is appointed to ensure the successful integration of the two banks. This remains - in the medium term - a unique value-enhancing opportunity."
Sir Victor joined the board as deputy chairman three years ago and became chairman in May 2006. He called the HBOS deal a "unique opportunity" when the takeover was announced - days after the collapse of US investment bank Lehman Brothers.
The deal, which saved the taxpayer from having to intervene, was viewed as a huge favour to Prime Minister Gordon Brown, who waved aside competition concerns over the deal. The result: a "mega-bank" with soaring bad debts, which analysts could reach more than £14bn.
But Sir Victor, who is likely to have faced a protest vote over his reappointment at the company's annual meeting next month, has always defended the deal and remained committed to the cause. Speaking at one of his most recent communal engagement – a British ORT business breakfast in March - he said his main concern was how to create value for shareholders.
“I believe the merger will do that in due course. I believe we will recover.”
Lord Leitch, who has been appointed deputy chairman, said the board was "very sad" at the decision.