Sainsbury’s has agreed to sell its core banking business to NatWest in a deal that the pair expect to complete in the first half of next year.

The move follows an announcement in January by Sainsbury’s that it was considering a phased withdrawal from its core banking arm, Sainsbury’s Bank, which covers its personal loan, credit card and retail deposit portfolios.

NatWest’s transaction will not include Sainsbury’s Bank’s commission income businesses, including insurance, ATMs and travel money. These are capital-light and profitable businesses with a “strong connection to Sainsbury’s core retail offer”, the group said.

Argos Financial Services is also not included in the deal, but Sainsbury’s revealed it would provide a further update on its plans for this business “at a future date”.

Sainsbury’s said it expects to return excess capital of at least £250m to the group once the phased withdrawal from its core banking business has been completed and the future model for Argos Financial Services is in place. The group intends to return this capital to shareholders.

“NatWest’s values and customer focus are a close fit with ours and as one of the UK's leading banks, NatWest’s scale and financial services expertise will ensure our existing financial services customers continue to be well looked after,” Sainsbury’s CEO, Simon Roberts.

“There will be no immediate change for our bank customers as a result of this announcement. Today’s news means we will focus all our time and resources going forward on growing our core retail business.”

NatWest is expecting to acquire approximately £2.5bn of gross customer assets, comprising £1.4bn of unsecured personal loans and £1.1bn of credit cards balances, together with around £2.6bn of customer deposits.

As part of the deal, NatWest also expects to add around one million customer accounts.

NatWest CEO, Paul Thwaite, added: “This transaction is a great opportunity to accelerate the growth of our retail banking business at attractive returns, in line with our strategic priorities. As well as a complementary customer base, the transaction is expected to add scale to our credit card and unsecured personal lending business within existing risk appetite.

“NatWest has a strong track record of successful integration, and we are focussed on ensuring a smooth transition for customers.”

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