(Adds CEO comments on bank sale, food inflation)
By Lawrence White and Paul Sandle
LONDON, April 6 (Reuters) - Co-operative Group, Britain's mutually-owned supermarket to funeral services group, lost 132 million pounds in 2016 after writing off its stake in the struggling Co-operative Bank.
Co-op said on Thursday that the uncertain prospects for the bank, which its management is trying to sell following a near collapse in 2013, made it prudent to value its stake at nil.
It is the third consecutive reporting period in which the group has written down the value of its 20 percent holding in the bank, which it valued at 140 million pounds in September.
The write-off meant that while the group's operating profit rose by 32 percent to 148 million pounds ($184 million) in 2016 on growth in its supermarkets, funeral services and insurance it recorded a pretax loss for the year.
Chairman Allan Leighton said the non-cash charge should not overshadow the strength of the recovery in its three core businesses which had pulled off a "hat-trick" of increasing market share and reporting industry-leading growth for the first time in five or six years.
Co-op said like-for-like sales in its supermarkets had grown by 3.5 percent, as its convenience stores attracted customers who wanted to shop little and often.
Chief Executive Steve Murrells said the growth had come from selling more food, as prices fell about 1 percent last year.
But two years of falling prices have come to an end, according to industry data, with rising import prices after Britain voted to quit the European Union last year.
Food inflation was about 1.5 to 2 percent, but had "probably slowed a little in the last few weeks", Murrells said.
"We've got a job to get a good balance between supporting good, loyal suppliers as well as keeping the pressure on the inflation lid," he told reporters.
Co-op, which had 4 million active customer members who receive a reward for buying its own-brand products, has been sourcing more products, such as meat, from British farmers in response to customer demands for locally-produced food, he said.
This had the added benefit of shielding some of the impact of rising import prices, Murrells added.
Murrells said the group had no role in the sale of the bank, but it remained hopeful that a buyer would be found.
The Co-op Bank, which is largely owned by its bondholders following its near collapse, has drawn interest from several bidders after it put itself up for sale in February.
Sources close to the process told Reuters that most bidders were interested in specific assets only as they saw little value in buying the whole group. ($1 = 0.8027 pounds) (Editing by Greg Mahlich and Alexander Smith)