On Friday Part-nationalized Lloyds Banking Group said its HBOS unit made heavy losses last year due to a bigger-than-expected rise in unpaid loans, wiping a third off its value and raising fears more state help will be needed.

HBOS reported a pretax loss of 8.5 billion pounds ($12.3 billion) for 2008, Lloyds said in a statement on Friday, Reuters reported.

The company had 7 billion pounds in bad corporate loans and a 4 billion pounds in asset write downs.

In December, HBOS had estimated its corporate bad loans for the 11 months to November 30 at a mere 3.3 billion pounds.

Lloyds shares closed 32.5 percent lower at 61.4 pence, having earlier fallen as low as 54.9 pence.

According to Lloyds, the big rise in bad loans and write downs was driven by falling asset values as credit markets continued to deteriorate.

UK banks are expected to be victims to a steep rise in uncollected debts this year as a recession that began in 2008 gains momentum.

The British economy contracted by 1.5 percent in the final quarter of 2008, official figures showed last month, and surveys have shown a steep falling-off of business activity.