Since becoming chairman in September 2009, Sir Win Bischoff has worked with management in stabilising the business and readying it for the potential sale of the Government's 39% shareholding.
He will retire no later than next year's shareholder meeting in May 2014, with the exact date subject to the appointment of his successor.
Sir Win said: "Lloyds Banking Group has, over the past four years, made significant progress in its goal to become a strong, efficient, UK-focused retail and commercial bank.
"Whilst clearly some challenges remain, the performance of the group is well on track. Indeed, in many areas, it is ahead of plan. This gives me every confidence in the future success of the group and it is therefore a good time to start the search for my successor."
Lloyds will hold its annual meeting on Thursday, having recently announced a big jump in profits for the first quarter of this year.
The Government is expected to begin the process of reprivatising Lloyds and Royal Bank of Scotland (RBS) before the general election in 2015.