The Co-operative Group has edged closer to buying 632 branches from Lloyds Banking Group.

An “understanding” had been reached over the Lloyds TSB and Cheltenham & Gloucester branches, The Co-op said today, having been granted preferred bidder status in December.

It said both parties “now had an understanding on the commercial terms of the transaction” but warned a deal was not yet certain.

If completed, the swoop would give The Co-operative Bank an additional 6% share of the retail banking market and five million new customers. It currently has a share of just 1%.

Speaking at the BRC Retail Symposium this week in London, The Co-op chief executive Peter Marks said a deal would “take as long as it’ll take”.

“I hope we do succeed,” he said. “We need scale to compete and banking needs a challenger brand. Our business model provides that challenge. People trust us.”