The Co-operative Group has confirmed it is making “good progress” on the purchase of 632 branches from Lloyds Banking Group.

The Co-op, headed by Bradford-born chief executive Peter Marks, said it now had exclusivity to continue the discussions and had come to an agreement on the commercial terms of the transaction.

But it has also said that there “could be no certainty” that the deal would be completed, adding that “further announcements would be made as appropriate”.

Earlier this week Lloyds Banking Group said the sale was still on track after fears were raised that it had stalled because of concerns about it tripling the size of the Co-op’s banking arm.

Lloyds has to offload the branch estate by November, 2013, as a penalty for receiving State aid at the height of the financial crisis.

The branch business accounts for 4.6 per cent of the UK current account market and up to 19 per cent of Lloyds’ mortgage book, with five million customers.

The Co-op spokesman said: “We can confirm we have made good progress in the process currently being run for the sale of Lloyds Banking Group branch assets and that the Group and Lloyds now have an understanding on the commercial terms of the transaction.

“This is subject to further discussions and the approval of the respective boards, the FSA, HMT and the European Commission.

“During this phase of the discussions, in which we will be working to agree Heads of Agreement, Lloyds has granted the Group exclusivity.

“There can be no certainty that a transaction will be completed and further announcements will be made as appropriate.”

The Treasury said it welcomed the announcement by Lloyds, which it said was a “significant milestone” in efforts to improve competition in the banking sector.

Lloyds chose the Co-op as its preferred bidder in December, but sale plans have already suffered lengthy delays.