Lloyds Banking Group announced a back-up plan on Monday in case its absent chief executive does not return from sick leave soon, and plugged another gap in its power vacuum by hiring a new finance director.

Britain's biggest retail bank shocked investors early this month with news that 47-year old CEO Antonio Horta-Osorio was taking a break due to a stress-related illness but was expected to be back at work before the end of the year.

Chairman Win Bischoff said on Monday Horta-Osorio was making good progress, but as part of its contingency planning David Roberts, a 49-year-old non-executive director and former Barclays executive, would become interim CEO in the event of a delay in Horta-Osorio's return.

This is a way of possibly easing in an eventual exit for Horta-Osorio, said SVM Asset Management fund manager Colin McLean.

Lloyds, 40 percent owned by the UK taxpayer, said it still expects Horta-Osorio to be back at work by Christmas but investors had been keen to know what contingency measures were in place.

In addition the bank said it was appointing George Culmer from insurer Royal & Sun Alliance as its new finance director. RSA said Culmer's leaving date was yet to be agreed.

Lloyds' current finance director Tim Tookey has been acting as caretaker CEO during Horta-Osorio's illness but Tookey was already due to leave LLoyds for insurer Resolution in February.

It removes an element of uncertainty, so to that extent, the hiring of Culmer is helpful, said Evolution Securities analyst Ian Gordon, who has a buy rating on Lloyds shares.

However, investors continued to express concern over the position of Horta-Osorio and the stock closed down over 7 percent at 23.42 pence, well below the 63.1 pence average price at which the British state acquired its stake in the bank.

It's a very confusing situation. It's still unclear who is running the ship and there's still a risk that Horta-Osorio might not return, said Brown Shipley fund manager John Smith, whose firm has a small holding in Lloyds.

BOSTOCK DECIDES AGAINST JOINING LLOYDS

Horta-Osorio's absence has left a particularly big hole at the top of the group since he had cleared out the previous management after taking the helm in March.

One of his key hires was meant to have been Royal Bank of Scotland's chief risk officer Nathan Bostock, who worked with Horta-Osorio at Spanish bank Santander.

However, Lloyds said on Monday that Bostock -- who was due to join Lloyds next year and had been tipped by analysts as a potential new finance director for the group -- would now be staying at the bank after careful consideration of his position.

Sources familiar with the situation said Bostock had been attracted by the chance to work once again with Horta-Osorio.

Roberts, who will take over as chief executive from Tookey at the turn of the year if needed, left his last big job through ill health. He was parachuted in to run Austrian bank BAWAG in 2007 after a trading scandal, but left as chairman and chief executive in September 2009, which the bank said was for health reasons. That was now resolved, Lloyds said.

Roberts joined the Lloyds board in March 2010. He had previously run international retail and commercial banking for Barclays, but was ousted in 2006 when it brought in Frits Seegers to lead a retail banking revival.

Roberts had been at Barclays for 23 years, joining as a graduate trainee and going on to oversee its complex takeover of Absa in South Africa.

Horta-Osorio, who has implemented a far-reaching overhaul including 15,000 job cuts, was recently described by staff as intense and obsessive about detail.

Lloyds shares have fallen by more than a fifth since the news of his illness, as worries have built that he may not return.

Credit ratings agency Moody's said it could downgrade Lloyds as the significant upheaval in senior management could hinder its restructuring.

With Bostock opting not to join, Truett Tate will now continue to run Lloyds's wholesale arm.

At RBS Bostock is tasked with running down the bank's non-core division, which still has assets of just over 100 billion pounds.

Earlier this month Lloyds posted a third-quarter loss and said it might miss its financial targets due to the economic turmoil caused by Europe's debt crisis.

The UK government is sitting on a 13 billion pound loss on its 20 billion bail-out of Lloyds, leaving the sale of its shares potentially some years off.

Britain finished up with a 40 percent stake in Lloyds and 83 percent of RBS after having to bail out both banks during the 2008 credit crisis.

(Editing by Will Waterman and Greg Mahlich)