Lloyds Banking Group’s deal to sell more than 600 branches to the Co-operative Group remains on track, it has confirmed.
The Co-op could potentially more than triple the size of its banking arm if the sale of 632 branches goes through, but there had been concerns the deal had stalled.
However, Lloyds said “considerable progress” has been made with the Co-op and it is now locked in exclusive talks.
Lloyds received state aid during the financial crisis and now has to offload the branch estate by November next year as part of the deal.
The branch business makes up 4.6% of the UK’s current account market, while it also accounts for 19% of Lloyds’ mortgage book, with about five million customers.
The Treasury described the announcement as a “significant milestone” in attempts to boost competition in the banking business.
“Although the deal has not been finalised, we warmly welcome this development as a positive step in the process of delivering the Lloyds divestment, and the benefits that will have for competition and the mutuals sector,” said a spokesman from the Treasury.
The deal has been subject to lengthy delays since Lloyds named the Co-op as its preferred bidder back in December, while hopes to tie the deal up by the end of March were hit by protracted talks with regulators.
Speculation was growing that Lloyds was struggling to close the sale and that it may have to drop the sale price by up to 50% or even float the business.
Lloyds gave no further details about the sale price in a statement issued on Thursday but said it had reached an “understanding on the commercial terms for the transaction”.
Concerns have been raised that the financial services arm will be significantly bigger than the rest of the Co-op business, so the whole of the Co-op would have to be regulated as a financial institution.
The Co-op’s board includes elected representatives and customers, so it is unclear if this kind of monitoring will meet its approval.
Stephen Bence, business funding expert and founder of BusinessFunding.co.uk , said: “I believe that this is excellent news for both small business and personal customers.
“More competition in the retail and commercial banking sector ought to lead to keener pricing and better service all round.
“Restructuring of the sector is well overdue and I hope that this is only the start.”