Yorkshire Bank owner CYBG is looking at making a bid for the Co-operative Group’s troubled banking division.
Sources said it is not yet clear whether CYBG would bid for all or parts of the Co-op Bank.
CYBG declined to comment on the speculation.
Last year CYBG was in talks with RBS about buying the Williams & Glyn branch network, but the deal failed when the Treasury told RBS that it no longer had to sell the division.
CYBG has said in the past it wants to build up its UK banking business and it is looking at opportunities, but they must immediately add value.
The other interested parties in the Co-op Bank are believed to include Sir Richard Branson’s Virgin Money.
On Friday the Co-op Bank, which was put up for sale in February, said it has received offers from several potential buyers as the troubled lender continues attempts to build up its capital position.
The bank said it has received a number of “non-binding proposals” from strategic and financial parties, adding that it has selected “several” of them to enter the next stage of the sale process, during which they will be provided with additional information.
But it is thought the sale - set to save the lender from raising up to £750m or being wound down - could see bidders snap up parts of the bank rather than the whole business.
In a statement, the Co-op Bank said: “In parallel, the bank continues to have discussions with existing and other potential new investors on options to build capital.
“There can be no certainty that any offer will be made for the bank or as to the level of any proposal or offer that may be made nor that the bank will pursue, or successfully implement, an equity raise and/or a liability management exercise of its outstanding public debt.”
It added that the Prudential Regulation Authority has “welcomed the actions being taken”.
In March the bank, which has four million customers, said its ability to meet longer-term UK bank regulatory capital requirements has been hampered by low interest rates and higher than anticipated transformation and “conduct remediation” costs.
Co-op Bank almost collapsed in 2013 after the discovery of a £1.5bn black hole in its finances and it was forced into a painful debt-for-equity swap. As a result, the loss-making lender is now majority controlled by US hedge funds.
On Thursday the Co-operative Group said its remaining stake in Co-op Bank is worth nothing as it reported its first loss since 2013.
The mutual revealed pre-tax losses of £132m for 2016 after the value of its 20 per cent holding in Co-op Bank was slashed from £185m in 2015 to zero.
Losses at the Co-op Group follow profits of £23m in 2015 and mark the first time it has fallen back into the red in three years, when it was plunged into crisis as the full scale of the woes at the banking business emerged.
It said the move to write off its stake in the Co-op Bank was “prudent”, but it hoped to get “some value from the sale”.