This article first appeared in The Edge Malaysia Weekly on May 24, 2021 - May 30, 2021

CITI Malaysia’s consumer banking asset disposal has certainly caught the eye of competitors, with foreign banks seen as a better fit for the business up for sale here.

When asked if OCBC Group could be keen on the sale, its CEO Helen Wong says: “On Citi, we are always open to opportunities in the markets that we have operations in.” She adds that Malaysia is one of OCBC’s core markets.

At S$1.09 billion (RM3.38 billion), Malaysia is the second-largest contributor to OCBC Group’s total operating profit before allowances and amortisation of S$5.7 billion in FY2020, after Singapore, which contributed S$2.89 billion. Greater China contributed S$857 million, followed by Indonesia (S$495 million).

However, in terms of the profit before tax metric, OCBC Malaysia ranked third with S$850 million after Singapore’s S$1.5 billion and Greater China’s S$1.29 billion.

From a segmental perspective, the global consumer and private banking segment is the largest contributor to the OCBC Group, making up 30% of its total profit before tax of S$4.165 billion in FY2020. The consumer banking segment contributed about a third of OCBC Malaysia’s total revenue in 2020.

UK banking group Standard Chartered may also be interested in Citi Malaysia’s consumer arm.

When asked, Abrar A Anwar, managing director and CEO, Standard Chartered Malaysia, says: “We continuously evaluate opportunities across our markets with the aim of growing our retail business in a way that is sustainable, cost-efficient and scalable.

“We always look for good people and have the appetite to hire new talent to serve our clients. There are huge growth opportunities in Asia’s dynamic markets — where we are well positioned, with a long heritage and deep experience.”

Abrar points out that as Malaysia’s first and oldest bank, having been here for 146 years, the banking group remains committed to the country and is consistently investing in digital capabilities to enhance its products and services, drive end-to-end process improvements and increase the ability of its clients to self-serve their needs.

“Our consumer, private and business banking business serves over 700,000 individuals and small businesses in Malaysia. The increasing level of wealth in-country support our opportunity to grow our business sustainably,” he says.

“With the bank’s global footprint in the world’s fastest-growing regions of Asia, Africa and the Middle East and as the only international bank with a full presence in all 10 Asean markets, we remain poised to support our clients’ globalisation aspirations. We will continue to leverage our strong presence to facilitate trade and investment flows between Malaysia, Asean and the rest of the world,” he adds.

Asean and South Asia are the second-largest contributor to Standard Chartered Group after Greater China and North Asia, contributing 31% or US$779 million (RM3.2 billion) to the group’s total underlying profit before tax of US$2.5 billion in FY2020. Malaysia is a key market, contributing 10% income to that US$779 million.

Income from retail banking, which totalled US$587 million, represented around one-third of Standard Chartered Group’s total operating income and one-quarter of its operating profit in FY2020.

Meanwhile, Wee Ee Cheong, deputy chairman and CEO of UOB Group, also expressed interest in Citi’s asset sale, telling The Edge: “We are always open to acquisition opportunities. As long as it is a strategic fit, is at the right price and makes sense for the long term, we will look at it.” He was commenting on Citi’s Asian consumer banking units, which include Malaysia.

UOB’s Malaysian business is an important one for the group. Operating profit from the Malaysian business made up 13.5% of the group’s total operating profit of S$4.99 billion in FY2020 (ended December).

Meanwhile, banking analysts say it makes sense for a foreign bank rather than a local one to acquire Citi Malaysia’s consumer banking asset.

“Citi Malaysia’s competitors may be a better fit than a local bank when it comes to the acquisition. Perhaps the sale could involve a few markets regionally so the franchise is more appealing to a banking group that is already in those markets. Also, a merger of the consumer franchise with a local bank may be dis-synergistic for some of Citi Malaysia’s retail banking businesses such as credit cards,” says a banking analyst who covers the region.

“Take, for example, Maybank. It already has a strong credit card portfolio today. Should it buy Citi Malaysia’s consumer portfolio, there could be customer overlaps in areas such as credit cards. The chances of a customer having a Citibank credit card and a local bank’s credit card are higher than that of a customer holding a credit card from two separate foreign banks. So for a local bank, the challenge is the potential duplication ... the potential merger dis-synergy. If there are big overlaps, no point making the acquisition,” he notes, adding that it is still early days and like most merger and acquisition (M&A) exercises, the situation remains fluid until the finishing line.

“Who knows? An unexpected contender for the assets may emerge and local banks might also throw their hat into the ring should they see value in the assets and can afford it. At the end of the day, pricing and valuation play a big part,” he adds.

Another banking analyst who covers the region points out that regulatory approval is a major hurdle to pass when it comes to banking M&As.

“I agree that international banks with a larger regional presence are more fitting for Citi Malaysia’s asset sale and also for Citigroup’s divestment in the other markets in this region. A larger regional banking group will be able to absorb the acquisition better … minimise the issues of job cuts and duplication. However, don’t forget that regulatory approvals play a big part in banking M&As. So it will also depend on whether the regulators are okay with the final suitor,” she adds.

Immediately after Citigroup Inc made the stunning announcement on April 15 that it was exiting retail banking in 13 markets across Europe and Asia, speculation was rife as to who could be a fitting suitor for the assets. Bloomberg reported that the sale could fetch as much as US$6 billion.

Media reports, some citing sources familiar with the process, noted that several potential suitors for Citigroup’s consumer business in Asia include DBS Group, Mitsubishi UFJ Financial Group, OCBC and Standard Chartered.

Just last week, Thailand’s second-biggest lender, Kasikornbank Pcl, expressed strong interest in Citigroup’s business in Thailand.

Kasikornbank CEO Kattiya Indaravijaya reportedly said: “Citigroup’s retail business here (Thailand) has a very large and good customer base.”

Meanwhile, back home, when asked about the number of potential buyers and whether they are local or foreign, Citi Malaysia’s CEO Usman Ahmed tells The Edge in an exclusive interview that it is still “very early” in the process and declines to comment on the matter.

Usman says “the preference” would clearly be for the group to find a buyer that has an interest in the whole business rather than piecemeal.

He adds that the buyer will have to have a banking licence to operate in Malaysia as it is a sale of the consumer portfolio only.

As for the tentative timeline for the process, Usman replies: “Many months is what I can tell you.

“It could easily extend into next year. That’s quite a likely scenario ... as you know, the process involves regulatory and certain other approvals.”

He also says that Citi Malaysia wants to ensure that its employees and customers are “fully taken care of during and after the process has concluded”.

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