The disclosures in an unscheduled trading update overshadowed a continuing improvement in the underlying profitability of the part-nationalised institution which it disclosed puts it on course to record a pre-tax profit of £6.2bn before exceptional items for 2013.
António Horta-Osório, chief executive of the group which includes Bank of Scotland, said: "Over the last three years we have reshaped, simplified and strengthened the business to create a low-risk efficient retail and commercial bank that is focused on our customers and on helping Britain prosper.
"Our significant progress in delivering sustainable improvements in our capital position and our profitability, despite legacy issues, is testament to the strength of our business model and the commitment of our people, and has enabled the UK government to start to return the bank to full private ownership.
"We expect to apply in the second half of 2014 to restart dividend payments and to deliver progressive and sustainable payments to shareholders thereafter."
Lloyds's shares fell 3.31p or 4% to 79.99p, reducing its market value to £57.1bn from £59.5bn.
The bank, which remains 33% owned by the taxpayer after the sale of some shares to institutional investors last year, said it is working with the Government on a share sale to the public.
The size and structure of the sale will be decided by HM Treasury and UK Financial Investments, which manages the Government's stakes in Lloyds and Royal Bank of Scotland.
Investors had hoped for a nominal pay-out as a final dividend for 2013 as a signal of Lloyds's ambitions to be a strong dividend-paying stock. It has not paid a dividend since 2008.
Some are concerned that Lloyds, and other banks, are having such trouble predicting the size of compensation claims. Lloyds has now put £9.8bn aside for payment protection mis-selling after adding an additional £1.8bn.
The further provision relating to the sale of interest rate hedging products to small and medium-sized businesses of £130m takes its total provision to £530m, of which £218m has been eaten up in administration costs.
Lloyds's latest profit prediction is some £400m more than the City expected and has raised expectations that its bad debt levels are continuing to improve.
Starting from a small base next year, Lloyds is aiming to build up its dividend payouts to a ratio of at least 50% of sustainable earnings in the medium-term, which is less than some investors had hoped for.
l Meanwhile, Santander UK said that regulators have approved its appointment of Nathan Bostock, currently RBS's finance director as its deputy chief executive.
Les Matheson, who has been put in temporary charge of RBS's retail business on the promotion of Ross McEwan to chief executive, is being tipped to be given the role permanently.