British banking group Lloyds is to take a £330 million hit on the cut-price sale of its loss-making German insurance arm.

The lender has agreed to sell Heidelberger Leben to UK-based buyout group Cinven and German insurer Hannover Re, which have formed a joint venture company to snap up life insurance portfolios in Germany.

While the sale for £250 million will see Lloyds take a hefty loss on its accounts, its absence from the books will boost its balance sheet position by around £400 million.

The sale price is a fraction of what Lloyds had originally been hoping to achieve, but comes as the 39 per cent state-owned group speeds up plans to shrink its international operations and seeks to meet regulatory demands to plug a hole in its financial reserves.

It also announced separately the sale of loans to a division of investment banking giant Goldman Sachs for £254 million, which will provide a further small increase to its capital strength.

Lloyds inherited Heidelberger when it bought Halifax Bank of Scotland (HBOS) at the height of the financial crisis. Heidelberger — acquired by HBOS in 1995 — has around 330,000 customers across Germany and a portfolio of around 600,000 life and pensions policies. It is headquartered in Heidelberg and employs around 300 people.

Lloyds said the business made a loss of £38 million in 2012. It is understand that Cinven and Hannover approached Lloyds over the Heidelberger business, which is the group's only non-core insurance arm. Heidelberger will continue to administer Lloyds policies in Germany and Austria under the Clerical Medical brand, as part of a long-term agreement.

The sale, which is expected to complete in early 2014, will leave Lloyds with an online deposits business in Germany and a number of corporate offices in the country. Under chief executive Antonio Horta-Osorio, Lloyds is shrinking its international footprint to focus efforts on the UK and has so far pulled out of 17 countries, with aims to reduce its presence to less than 10 by the end of next year.