THE Co-operative Bank is to expand its brand of ethical trading throughout Scotland, after a £750 million deal to buyout hundreds of Lloyds branches.

In a move seen as a boost for consumers, it will buy out 632 Lloyds TSB branches – including all 185 north of the Border – in the "biggest shake-up in high street banking for a generation".

Up to 1.5 million Scots customers will be affected by the move, which will make the Co-op the third largest high street bank in Scotland. Previously it had just four branches in the country.

It will also be the fourth largest bank in Scotland in terms of current account market share.

The deal – yet to be approved in full by regulators – will see the branches involved rebranded to TSB from summer 2013, before customers are transferred to the Co-op the following November.

Richard Lloyd, executive director at Which?, said: "This is a welcome first step to bringing more competition to the high street, which is vital for improving the quality and range of banking services available."

Consumer Focus Scotland said the deal was a "big opportunity" for the Co-op "to provide a real alternative to other banks". Trish McAuley, deputy director at Consumer Focus Scotland, added: "Co-op must offer a point of difference and not just more of the same offered by the big five banks."

Lloyds said there would be no changes for the 4.8m customers affected by the deal UK-wide until next year and it will communicate with all of them about changes in due course.

The Co-op claimed the deal was a positive step for its 20m customers because it will propel the bank into the "premier league of UK banking".

John Walker, national chairman of the Federation of Small Businesses, added it was "good news" for businesses.

He said: "With four in 10 small firms refused credit by the main high street banks, this challenger bank will open up competition and should help small firms access the cash they need."

The Co-op, which has seen a 60% increase in inquiries in the past month in the wake of the Libor rate scandal, prides itself on being an ethical bank and has turned away a reported £1 billion of funding from business activities it believes are unethical.

Its says it won't finance any organisation that advocates discrimination, incites hatred, manufactures or transfers indiscriminate weapons, fails to employ basic labour rights or takes an irresponsible approach to tax in developing countries. It also refuses to finance any business whose main activity contributes to climate change.

Peter Marks, chief executive, said: "This deal would deliver the biggest shake-up in high street banking in a generation.

"We believe this would be a great deal for customers, for the public, for UK banking generally and for The Co-operative Group, in particular. Our bank has continued to go from strength to strength, coming through the financial crisis in great shape and maintaining our ethical and socially responsible credentials.

"The deal will give us access to large swathes of the UK, particularly in Scotland where we do not have a banking presence. We know we have a great bank, we have great customer service and great products and we need to expand that."

Scottish Secretary Michael Moore, said the deal was excellent news for people and businesses across Scotland.

He added: "The sale of hundreds of Lloyds branches creates a new challenger bank on Scotland's high streets, providing more competition and more choice for customers. It's fundamental to the creation of a better banking system."

l Marks & Spencer's first bank branch opened yesterday at the company's Marble Arch store in London. It offers seven days a week banking facilities and a pager service, so customers can carry on shopping instead of queuing. M&S will open 15 more branches by the end of the summer, including in Aberdeen, The Gyle in Edinburgh and Argyle Street, Glasgow.