The decision taken by Citigroup to exit the UK retail banking sector is based on the banks competitive advantages.
GlobalData Analyst Murthy Grandhi said: “The move to close the UK retail banking operations forms part of Citigroup’s strategy to focus more on its high return wealth management space. Earlier in 2022, the American banking major announced its intent to wind down its consumer, small business and middle-market banking operations in Mexico, which operates through Citibanamex.
“Although Citi says that shutting down its sole UK retail branch will have no impact on its overall finance, the move complements its 2021 decision to focus on global wealth centers as well as payments and higher-returning institutional businesses, where the bank has competitive advantages.
He added foreign banks have traditionally struggled to crack the overseas retail banking market despite bringing in advanced technology, and enjoying strong brand equity, primarily because of different regulatory environments and domestic demographic trends, and in the UK, it is more complex with the success of challenger banks.
GlobalData cited Citibank UK reported a revenue of $101.9 million for the year ended 31 December 2021, a decline of 9.2% Year-on-Year. It accounted for 0.13% of the Citigroup’s total revenue in FY2021.
Consequently, Citigroup plans to further enhance its competitiveness and profit margin by focussing on higher-returning institutional businesses where it has competitive advantages. As a result, the continued trimming of its consumer banking business may position it as corporate bank, he added.
The follows Citigroup’s decision to exit consumer banking operations in 13 markets across Asia, Europe and the Middle East, reported in the first quarter of 2022, in order to enhance competitiveness with shift in focus to wealth management in Asia.
GlobalData stated: “Due to lack of scale and resources to compete and channelise available resources to more high return wealth management space, Citigroup has decided to exit from consumer banking business in 13 markets including Australia, Bahrain, China, India, Indonesia, South Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam. However, it will continue retail banking activities in Asia and EMEA from centers such as Singapore, Hong Kong, the UAE and the UK.
Majority of the markets constitute the group’s Asia Global Consumer Banking Business segment (Asia GCB). The exit seems to be a long-time coming as over the last five years, retail banking revenue has been witnessing a flat growth with compounded annual growth rate (CAGR) of -0.01% from US$4,270m in 2016 to US$4,268m in 2020. In terms of profitability also, the business posted subdued CAGR of about 3% from US$652m in 2016 to US$735m in 2020 with high-cost structure of about 70%.
In addition, the latest Q1 2021 results also were not encouraging as Asia GCB reported 9% decline in revenue over Q1 2020 on account of decline in revenue from card business and lower spreads in deposits.
On the other hand, the group’s Asian Institutional Clients business, which provides wealth management and markets related services was much more dynamic. The business posted a CAGR of 7.6% in revenue over the past five years with profit margin up from 31.4% in 2016 to 38.3% in 2020.
With increased focus on wealth management through re-channelising of consumer banking resources, Citigroup could further enhance its competitiveness and profit margin in its wealth management and market related services businesses.
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