Tuesday, May 18, 2021

It’s not about us, experts say on Citi exit from consumer banking market

They say foreign banks are moving towards consolidation in order to maximise their profits.

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Experts have played down concerns that the recent exit of global financial services giant Citigroup from the country is a reflection of Malaysia’s economy, saying the move signals a worldwide trend in which banks are consolidating to focus on the more lucrative wealth management business.

Izlin Ismail, from Universiti Malaya’s Faculty of Business and Accountancy, said Citi’s move could in fact herald similar consolidation strategies by other foreign banks.

“They focus only on the most profitable portion of the banking business,” she told MalaysiaNow.

“Retail banking is obviously not as profitable for them.”

In an announcement last week, Citi said it would be leaving Malaysia alongside 12 other consumer banking markets as part of its policy shift towards expanding wealth management operations.

It said it would do so at “wealth centres” where it would have the best scaling opportunities.

The other 12 markets were Australia, Bahrain, China, India, Indonesia, Korea, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam.

CEO Jane Fraser assured that Citi would continue to operate its consumer banking franchise in Asia, Europe, the Middle East and Africa from four such centres: Singapore, Hong Kong, UAE and London.

Izlin said Citi’s exit reflects more than just the state of Malaysia’s economy.

“It would be sad if a bank like Citi closed its doors completely in Malaysia,” she added. “But that’s not happening yet as they will still operate their corporate banking services here.”

Economist Yeah Kim Leng agreed that the move was likely part of the corporation’s global business restructuring to allow it to focus on wealth management.

“Given that Malaysia is generally considered an overbanked market, Citi’s exit from the consumer market segment will not disrupt the country’s savings-investment intermediation capacity,” Yeah, a lecturer at Sunway University, added.

However, he said the departure of a major financial corporation like Citi could also signal a loss of confidence in the country, adding that Malaysia would likely suffer from job losses, reduced consumer choice, and a smaller number of industry players in finance and banking.

Izlin said any lay-offs could be a cause for concern as retail banking staff do not possess skills that can be transferred to other banks if they are sacked.

“They are trained for specific systems within their own banks which can differ greatly from others,” she said.

“If they get laid off, other banks may not be so keen to hire them as they will need to retrain them.”

Having said that, efforts could also be made to redeploy staff to other business areas. If this happens, Izlin said, the impact on employment could be smaller.

“We would need to see what they offer the staff: redeployment or voluntary separation schemes.”

Citi’s exit from the country has also been seen as an inability on the corporation’s part to compete with local banks.

But Izlin said it was more likely driven by thinning profit margins for retail banking products like credit cards and mortgages as interest rates have been low for some time.

“I don’t think Citi’s customer profile would compete with local banks. They have a better customer profile and are likely to have loyal customers due to branding,” she said, adding that corporate banking and wealth management would be more lucrative for the company as it would charge client fees.

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