THE Co-operative Group announced yesterday that it has returned to profit a year after announcing disastrous losses following the near collapse of its banking arm.

But the Co-op will not pay dividends to its eight million members until 2018.

The retail food section of the Co-op will in the meantime exapnd, opening 100 new convenience stores.

The Co-op is in recovery after the 2013 discovery of a £1.5 billion “black hole” in the accounts of the Co-operative Bank.

The problem was caused by catastrophic errors by senior executives which included the takeover of the Britannia building society and a failed bid to take over hundreds of branches of Lloyds bank.

The problems led to a “rescue” by United States hedge funds which meant that the bank lost its co-operative status.

Thousands of Co-op members joined a campaign to ensure that the bail-out did not mean abandonment of Co-op Bank’s ethical investment policy — the bank refuses to invest money in the arms trade, tobacco, companies which exploit the Third World, and similar ventures.

To survive a £2.3bn loss in 2013, the Co-op sold its pharmaceutical arm and its agricultural holdings to raise capital.

It has now reported a profit of £216 million for 2014.

Chief executive Richard Pennycook said that the Co-op had completed the rescue phase of its turnaround but said that a resumption of dividend payments was unlikely until after the rebuilding phase completes at the end of 2017.

Mr Pennycook said: “The hard work of rebuilding the Co-operative Group for the next generation, and restoring it to its rightful place at the heart of communities up and down Britain, is now under way.”

The Co-op is Britain’s largest mutual business, owned by more than eight million members. It is Britain’s fifth-biggest food retailer with almost 2,800 local, convenience and medium-sized stores.

The Co-op said its food business’s like-for-like sales were up 0.4 per cent overall as underlying profits increased 1.5 per cent to £251m.

The group acquired 82 new convenience stores and refurbished more than 700 stores. It aims to add another 100 this year.