Rumors of Korea Citibank Sale Spread Gradually... Acquisition Appeal "Not Sure"

Negative Impact of Retail Finance Contraction
Big Tech Faces Challenges Due to Legal Issues

[Asia Economy Reporter Kiho Sung] As rumors of Citibank Korea's withdrawal resurface, the financial sector's attention is focused on the possibility of it being put up for sale. However, opinions are divided on whether Citibank, which has shown sluggish performance in recent years and has been passive in entering new businesses, is attractive as a sale item. Moreover, the big tech (large information and communication companies) industry, mentioned as potential buyers, is widely expected to find it difficult to take over due to legal challenges and the burden of absorbing personnel and branches.

According to the financial sector on the 6th, The Wall Street Journal reported that Jane Fraser, the new CEO of Citigroup in the U.S., is recently reviewing a comprehensive restructuring of the group. According to the report, Citigroup is highly likely to cease commercial banking (retail finance) operations in some parts of Asia, including Korea and Vietnam, leaving only investment banking (IB) functions. This is the first time Korea has been directly mentioned as a withdrawal target.

This is not the first time rumors of Citibank Korea's withdrawal have surfaced. However, unlike in 2015 and 2017, the industry is now pointing out that withdrawal could become a reality this time. In fact, Citibank recently underwent a significant restructuring, reducing the number of branches from 133 in 2017 to 44 due to margin compression caused by low interest rates and competition with domestic commercial banks. Its passive stance on entering new businesses such as MyData also adds weight to the withdrawal rumors.

Furthermore, Citibank Korea's net profit has been declining over the past few years. Net profit was 307.8 billion KRW in 2018, 294.1 billion KRW in 2019, and only 160.9 billion KRW up to the third quarter of last year. According to the Financial Supervisory Service, Citibank Korea's net interest margin decreased from 2.68% in 2017 to 2.47% in 2018, 2.35% in 2019, and 2.08% as of the end of the third quarter last year.

Although sale rumors are growing, negative views dominate regarding its realization. This is because existing large financial holding companies are strengthening non-face-to-face finance and reducing the scale of retail banking branches, making it unattractive to acquire Citibank Korea.

Moreover, big tech companies, considered strong candidates, have stated they are not considering acquisition. The main reason is the difficulty in overcoming legal hurdles. Since KakaoBank and K Bank have non-financial capital as major shareholders, under the principle of separation of banking and industry, they can own only up to 10% (15% for regional banks) of bank shares. This situation is the same for other fintech companies like Naver.

Although the number of branches has been drastically reduced, the fact that there are still more than double-digit branches remaining is also a problem. According to the Electronic Financial Transactions Act, internet banks are required to provide financial products through electronic devices and prohibit users from face-to-face interactions with employees of financial companies or electronic financial businesses. Therefore, even if someone acquires Citibank Korea, they would face the difficult task of closing all branches and laying off related personnel.

There is also talk of converting Citibank Korea into an internet-only bank, but this is not easy either. If converted to an internet-only bank, the acquiring company can secure up to 34% of shares. However, it must not have received fines or higher penalties under the Fair Trade Act in the past five years, and government approval is required to convert Citibank Korea into an internet bank. Even if a big tech company attempts acquisition, there are many hurdles to overcome.

A big tech industry insider said, "Due to current laws, acquisition is difficult, and converting Citibank Korea into an internet bank slightly increases acquisition possibilities. However, big tech companies focusing on electronic finance have no reason to newly acquire an internet bank."