EU says Lloyds needs to shrink presence

Partially-nationalised bank Lloyds needs to shrink its activities in areas where it is currently dominant to compensate for taking billions of pounds in state aid, the European Union's antitrust chief said.

Lloyds became Britain's largest mortgage lender after it acquired its beleaguered rival HBOS earlier this year, which owned mortgage provider Halifax.

Media reports said the European Commission could force a sale of part or all of Halifax as a condition for approving state aid given to Lloyds. Other asset sales could also be likely.

"We need to ensure aid does not allow the bank to consolidate and reinforce its leading presence in markets in which it is already concentrated to the detriment of consumers" European Competition Commissioner Neelie Kroes told the European Parliament on Tuesday.

She said the European Commission was currently assessing Lloyd's restructuring plan, tied to the state aid it received from British authorities.

The bank's restructuring would need to ensure its viability, that it also shoulder part of the burden and that it does not distort competition, Kroes said.

Lloyds' shares were up 1.45 percent in mid-session, outperforming a 0.6 percent higher DJ Stoxx banking index.