Tesco, the world's third-biggest retailer, said its Tesco Bank business in the UK has delayed the launch of its current account service until next year, it said on Monday, dealing a blow to government attempts to reduce the dominance of Britain's big five banks.

The bank had previously intended to launch current accounts in the autumn of this year, aiming for a slice of a market dominated by Lloyds, Royal Bank of Scotland, HSBC, Barclays and Santander UK.

Tesco Bank said the launch timing was now being driven by the speed of implementation of new industry-wide systems to help customers switch current accounts more easily.

We are progressing at the right pace in our journey towards offering a full-service bank, a spokeswoman said. We're close to completing the migration of our existing products and services and will continue to take a cautious approach to launching new products, she added.

News of the current account delay at Tesco Bank comes a month after the wider group issued its first profit warning in living memory following disappointing Christmas sales, sending its shares tumbling.

Shares in Tesco were down 1 percent at 323.4 pence at 9:43 a.m. on Monday, valuing the business at about 26 billion pounds.

Tesco announced plans to set itself up as a bank in 2008 when it bought out RBS from a financial services joint venture.

While it has launched some products since then, like a fixed-rate savings account, it has focused largely on setting up its own operations, from IT platforms to call centres, and transferring customers to them.

Some analysts have been disappointed by the time it has taken Tesco to gear up its banking business, arguing it has missed an opportunity to take custom from established players during the financial market crisis and lagged other new entrants, like Virgin Money and Metro Bank.

(Reporting by James Davey; Editing by Greg Mahlich)