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M&As

Citibank Korea's retail arm sale may fuel M&A market

Apr 16, 2021 (Gmt+09:00)

Citibank Korea's retail arm sale may fuel M&A market

Citigroup Inc.'s plan to exit from South Korea's retail banking market may invigorate the country's M&A market, with small-sized, non-banking financial services firms touted as potential candidates. 

On Apr. 15, Citigroup Chief Executive Jane Fraser announced the US banking giant intended to pull out of 13 countries, mostly in Asia, saying: "We don’t have the scale we need to compete (in those countries)."

Her remarks were made when Citigroup released first-quarter results. Since she took over as Citigroup CEO in February this year, market speculation has mounted that the US group would withdraw from Asia's consumer banking market to focus on more profitable businesses.

Industry sources picked DGB Financial Group and OK Financial Group as potential candidates to buy Citibank Korea's retail operations. A possible purchase will give them a broader banking network, as well as access to Citibank's high-net-worth clients where the bank has strength.

Based on the domestic banks' average price-to-book ratio of 0.3 to 0.4, Citibank Korea's retail arm is reportedly worth around 1.5 trillion won ($1.3 billion). It runs 36 retail branches with less than 1,000 employees and 17 trillion won worth of loans extended to individuals.

DGB originated from Daegu Bank, based in the city of Daegu, southeast of Seoul. Last month, its investment arm DGB Asset Management expanded its retail business by taking over the 700 billion won retail fund business from BlackRock Inc., the world’s largest asset manager. With the deal, BlackRock pulled out of Korea's retail market.

OK Financial Group started as a small consumer finance company in 1999. It now runs a savings bank, an investment firm and capital services companies.

In South Korea, Citigroup has long been speculated to wrap up its retail operations, since it sharply reduced the number of retail branches in both 2014 and 2017 with the implementation of early retirement programs. But it had denied such rumors and instead, focused on wealth management.

It entered South Korea's consumer banking market in 2004 by acquiring then KoRam Bank. If it folds up its Korean retail business, it will become the second global bank to do so, since HSBC pulled out of the retail market in 2013.

Last year, Citibank Korea's net profit tumbled by 39% to 187.8 billion won, compared with two years before. In particular, its consumer banking has shrunk to one-fifth over the past two years, with the segment's earnings plummeting to 14.8 billion won versus 72 billion won in 2018. 

But it was not alone to struggle in the challenging banking environment. The country's five leading banks, including Kookmin and Shinhan, logged their first drop in net profit last year in five years, hit by shrinking lending margins and heavy charges in relation to potential loan losses and voluntary early retirement.

Further, the accelerating digitalization amid the contactless trend put a dent on banks' margins. They are now faced with the threat from big tech firms pushing into financial services, coupled with higher levels of regulatory meddling in the prolonged pandemic era and stagnant or falling non-interset interest incomes.

By Nan-Sae Bin, Daehun Kim and Sul-Gi Lee 

binthere@hankyung.com

Yeonhee Kim edited this article.

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