Lloyds Banking Group Plc, the part-nationalised lender which has been hit by its chief executive's temporary absence due to health issues, reported a nine-month loss and said it may have to put back some financial targets due to the economic turmoil.

Lloyds, which is 41 percent owned by the government after being bailed out during the 2008 credit crisis, said it made a nine-month loss of 3.86 billion pounds after its earnings were hit by lower banking margins and higher funding costs.

The bank had made a first-half loss of 3.25 billion pounds, hit by compensation for customers mis-sold insurance products.

Lloyds shocked investors last week by announcing 47-year-old Chief Executive Antonio Horta-Osorio was taking a break due to stress-related illness, leaving a potential power vacuum at the top of Britain's biggest retail bank.

It gave no update on his health in its latest statement.

Lloyds said it had begun talks with the UK Listing Authority over the possible spin-off and listing of 632 retail bank branches it has been ordered to sell.

It plans to sell the branches and new bank venture NBNK and Co-Op Financial Services have said they will bid, but could list them if offers are too low.

We are aiming to identify a preferred option by the year end, it said.

Tim Tookey, the finance director who is due to leave the bank in February, is serving as interim CEO, adding to worries that a major executive shake-up by Horta-Osorio has left Lloyds thin at the top at a time when it faces several headwinds.

(Reporting by Sudip Kar-Gupta; Editing by David Holmes)