The deal was part of the Treasury's taxpayer-backed Asset Protection Scheme to insure banks' riskiest assets against further losses resulting from the credit crisis.
Lloyds' directors do not believe that Sir Victor would have been ousted by shareholders at the forthcoming annual meeting, according to the BBC's business editor, Robert Peston.
However, he believes that UK Financial Investments (UKFI), which manages the government's stake in financial institutions such as Lloyds and the Royal Bank of Scotland, was "acutely aware" of other shareholders' convictions that there had to be a change at the top of Lloyds.
"I am now persuaded that UKFI would have voted its 43% (that's taxpayers' 43%) against him staying on," Mr Peston said.
Lord Leitch said the board "was unanimous in wanting Sir Victor Blank to seek re-election as chairman for another three years".
LLOYDS' TOXIC ASSETS
83% of the £260bn toxic assets came from HBOS
17% come from the books of Lloyds TSB
Of the toxic assets, £151bn are in corporate and commercial loans
£74bn comes from residential mortgages
"We are very sad about Sir Victor's personal decision to retire, although we respect and understand his reasons for it," he said in a statement.
"Sir Victor is a first-class chairman and we are delighted that he will continue with us to ensure an orderly succession and the continued integration."
Lloyds last month announced it is to cut 985 jobs at a business offering car finance over the next two years, the first major job losses from the merger.
The government backed the Lloyds takeover of HBOS last September, bypassing normal competition rules to avoid the collapse of the Halifax owner.
Shares in the bank have dropped by 27% so far this year, closing at 89 pence on Friday.
Lloyds controls about 25% of British customers' personal bank accounts and about 28% of the mortgage market.
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