The Co-operative Bank has returned to operating profit for the first time since 2013, despite IT upgrades and PPI payouts resulting in an overall loss before tax.

A statement of full year profits for 2018 showed group losses before tax were £140.7 million, up slightly from £140.3 million in 2017. However, operating costs were down by 13 per cent to £374 million.

Operating profit rose to £14.9 million, up significantly on the operating loss of £84 million recorded the previous year.

In total, the bank recorded an investment spend of £112.9 million, up £39.8 million on 2018, as a result of costs associated with a project to complete its IT separation from Co-operative Group, which the lender said is now entering its final stages.

The bank recorded a £31.7 million spend on customer redress charges, driven primarily by sustained levels of Payment Protection Insurance (PPI) scheme activity, which was higher than expected.

The boost to balance sheets comes after the Co-op was selected to be part of the RBS Incentivised Switching Scheme, aimed at enabling challenger banks to compete for business current account customers with the ‘big five’ incumbent banks.

Announcing the full year results, chief executive Andrew Bester said: "The backdrop of political uncertainty and intense competition has created an extremely challenging banking environment but, despite this, we have made sizeable progress in the bank's transformation this year, reaching a key milestone by recording an operating profit for the first time since 2013.

“While our ongoing investment in transformation means continued losses overall, this is nevertheless an important step towards achieving our goal of sustainable profitability.”

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