The mutual was chosen as the preferred bidder in December and terms were expected to be agreed by the end of the month.
But sources close to the deal told the Financial Times the mutual would need to conduct an overhaul of its board in order to convince the Financial Services Authority it is capable of running a large banking business and that terms would therefore not be agreed until at least the middle of the year.
The report states the regulator is looking for the Co-op to appoint more banking experts to its board, especially a risk expert. The board is led by Len Wardle, a university fellow, and Paul Flowers, who is a Methodist minister.
The move would triple the size of Co-op’s banking arm, giving it almost 1,000 branches.