The market landscape and banking structure suggest the impact on Malaysia from the exit is manageable, says expert

by ASILA JALIL / Pic by BERNAMA

CITIGROUP Inc’s decision to exit the retail banking business in Malaysia is not expected to trigger other foreign banks in the country to do the same, but the move will put some “good quality” assets up for sale, according to analysts and bankers.

The move by the US banking group to shut down its consumer banking operations in 13 markets across Asia, Europe and the Middle East is seen more as a strategic decision and not one driven by market conditions.

Fitch Ratings Inc financial institutions Singapore director Willie Tanoto said the exit from the 13 markets was related to modest contribution to consolidated net income, lower potential for local market leadership and Citi’s pursuit of organisational simplification and greater synergies.

“The divestiture is not necessarily specifically reflective of business dynamics or prospects in Malaysia’s banking sector.

“Therefore, there is no reason to suggest other foreign banks are likely to follow suit in the near term,” he told The Malaysian Reserve (TMR) in an email reply recently.

Data from Bank Negara Malaysia showed there are 18 foreign commercial banks in the country currently, including Citibank and five foreign Islamic banks.

Tanoto said most foreign banks in Malaysia are focused on wholesale banking, while few have retail branch networks that play to selected niches.

Industry observers said among the foreign banks with a significant presence in retail banking are HSBC Bank Malaysia Bhd, Standard Chartered Bank (M) Bhd, OCBC Bank (M) Bhd and United Overseas Bank (M) Bhd. Other foreign commercial banks operating in Malaysia include Sumitomo Mitsui Banking Corp Malaysia Bhd, China Construction Bank (M) Bhd and JP Morgan Chase Bank Bhd.

He said domestic players continue to dominate Malaysia’s banking system as six of the country’s largest banking groups, including Malayan Banking Bhd and Public Bank Bhd, account for three-quarters of the system’s loans and deposits.

“The foreign banks’ onshore balance sheets are relatively small, with only five banks, other than Citibank, having more than 1% share of system assets each.

“The market landscape and banking structure, as well as the ample system liquidity, suggest the impact on Malaysia from the exit of a foreign bank would be manageable.”

Tanoto said foreign player presence in the Malaysian banking system would not materially change if the buyer of Citibank’s Malaysian retail assets is another foreign bank.

One local banker, who declined to be identified, said Citibank’s asset sale as a result of exiting the consumer banking operation would be keenly watched.

“It is generally known that Citi has good quality assets. So, they may command a premium,” he said.

MIDF Amanah Investment Bank Bhd VP and head of research Imran Yassin Md Yusof told TMR that Citi’s exit is an “isolated case” triggered by the group’s overall strategy and does not reflect industry trend.

When asked if other foreign banks would follow suit, Imran Yassin said the decision would depend on the individual bank’s strategy, risk appetite and assessment of the Malaysian market.

“It depends on whether banks can effectively compete here and whether it fits in their overall strategy. In fact, Citi’s move may tone down some of the competitive landscape in the sector,” he said.

On April 15, Citi announced that it will exit its consumer franchises in Australia, Bahrain, China, India, Indonesia, Malaysia, South Korea, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam. It will instead shift its focus to its consumer banking business in Singapore, Hong Kong, the United Arab Emirates and London, UK.

Its CEO Jane Fraser said the group decided to double down on wealth by focusing on investments and resources to businesses that have growth potential.

Citibank Bhd recently assured its customers that its consumer business operations and offices will continue to operate as normal until further notice.