Frankly: the reality of retail banking

This article first appeared in The Edge Malaysia Weekly, January 17, 2022 – January 23, 2022.

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The book value of 1.2 times the book value of Citigroup’s retail banking business reflects the difficult business environment in this segment of the bank.

Despite limited branches, the third largest banking group in the United States enjoyed great influence as a retail banker. Having an account with Citibank is considered prestigious. But the business was not profitable for Citigroup, hence its undemanding valuation and exit.

Singapore’s United Overseas Bank Ltd has avoided the challenge of other banking groups, including Standard Chartered, to acquire Citigroup’s retail banking business in four countries – Indonesia, Malaysia, Thailand and Vietnam. It pays S$5 billion (about RM15 billion), which values ​​the retail business at 1.2 times book value.

Citigroup appears to have secured a better deal for its business in the region compared to the sale of its retail business in South Korea in November last year, in which it suffered a loss of 1. $5 billion. Citigroup’s exit from the retail banking business in 13 markets in Asia, Europe and the Middle East marks the end of its ambitions to be a global consumer bank.

This is not the first time that a large financial group has moved away from retail banking in markets where it is not very present. Last year, Mitsubishi UFG Financial Group and HSBC sold their U.S. retail banking businesses due to intense competition. HSBC would have suffered a loss on disposal.

Increasingly, the trend is for global banks to turn to digital banking if they seek a presence in retail lending. To that end, JPMorgan Chase and Goldman Sachs have both launched digital-only banks to meet the needs of the UK retail market.

As for Malaysia, Bank Negara Malaysia is supposed to announce the winners of the five digital banking licenses up for grabs at this time. Citibank’s exit bodes well for the winners of digital banking licenses.

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