The grocer confirmed it was buying the business from Lloyds 16 years after it first launched the bank in 1997.

Unlike the main high street rivals, it has no funding issues, and profit before tax was £59m this year.

Justin King, chief executive of Sainsbury’s, said: “This is an exciting transaction for Sainsbury’s which has the potential to deliver significant benefits to our shareholders, customers and colleagues.

“We have 23 million transactions each week by customers who know and trust the Sainsbury’s brand. We see a great opportunity to increase the number of Bank customers by offering accessible, high quality financial services products which reward customers who bank and shop with us. We expect the Bank to become an important source of profit diversification and growth, building on the strengths of our core business.”

Peter Griffiths, who was appointed chief executive of Sainsbury’s Bank in November 2012, will continue to lead the bank, the group said today.

The purchase comes as Sainsbury’s sees a dip in its profits overall.

Pre-tax profits fell 1.4% to £788m, for the year to 16 March 2013, although sales, including fuel, rose 4.5% to £23.3bn.

The supermarket is the country’s third-largest after Tesco and Asda.

Its shares have risen 24% over the last 12 months.