Sir Victor Blank said he will retire as chairman of part-nationalised Lloyds Banking Group before the firm's annual meeting next year.
Sir Victor - who said it was "the right time for the group to appoint a new chairman" - has faced criticism over Lloyds' rescue takeover of HBOS last year.
Lloyds will be loss-making this year as a result of soaring bad debts at HBOS but Sir Victor defended the deal.
He said: "I 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's decision to retire comes amid mounting pressure from investors and doubts over the wisdom of the takeover.
Lloyds was a conservatively-run bank known for its strong dividend payouts and risk controls before its fateful decision to rescue ailing HBOS last September.
The combined group is now 43% owned by the Treasury but this stake could rise as high as 77% under the terms of a deal to put £260 billion of toxic debts - mostly from HBOS - into a taxpayer-backed insurance scheme.
Sir Victor - who became chairman in May 2006 and earned £669,000 in salary and benefits in 2008 - would have faced a significant protest vote over his reappointment at the company's annual meeting in Glasgow next month.
He called the HBOS deal a "unique opportunity" when the takeover was announced last September - days after the collapse of US investment bank Lehman Brothers triggered a near-meltdown of the financial system.
Sir Victor's decision to retire comes amid mounting pressure from investors and doubts over the wisdom of the takeover.
