Citibank Korea’s main branch in Seoul is seen in this April file photo. Yonhap
Bank’s exit plan increases likelihood of credit-rating downgrades
By Park Jae-hyuk
S&P Global Ratings has sided with Citibank Korea against Korea Investors Service (KIS), Korea Ratings (KR) and NICE Investors Service, all of which expressed skepticism over the U.S. bank’s operation in Korea, after Monday’s announcement of its decision for a phased closure of its consumer banking unit here without selling it.
On Tuesday afternoon, S&P reiterated Citibank Korea will keep serving as a “highly strategic” subsidiary of Citigroup’s global business, despite the latest exit plan.
The New York-headquartered ratings agency also reaffirmed Citibank Korea’s long-term issuer default rating at “A” with a stable outlook, as it did when Citigroup announced its plan to exit from consumer banking in 13 countries in April.
Recognizing Citibank Korea for displaying a high level of profitability in the corporate banking sector, S&P said that the shutdown of its consumer banking operation will have a limited impact on the domestic banking industry.
From a credit standpoint, S&P’s assessment of the closure of Citibank Korea’s retail banking business came as the three domestic rating agencies warned the U.S. lender of the increasing possibility of credit-rating downgrades, saying that its exit plan has made it difficult for them to affirm its current AAA rating.
Fitch Ratings and Moody’s Investors Service have yet to publish their own reports regarding their outlooks for Citibank Korea.
But local agencies dismissed the optimism about Citibank Korea’s corporate banking business.
A few hours after S&P voiced its view, KIS, the Korean subsidiary of Moody’s, released a report expecting Citibank Korea’s market share to decline further, due to the exodus of individual customers.
“The plan to phase out its consumer banking operation will have a negative impact on its credit rating, considering that its foothold in Korea will weaken,” KIS analyst Kim Sun-young said in a report, Wednesday. “It is difficult to say that the bank’s corporate banking network is independent from its consumer banking unit, so the bank losing its retail customers may reduce the number of its corporate clients to some degree.”
NICE, the nation’s only credit rating agency that is independent from foreign firms, mentioned compensations to be paid for Citibank Korea workers retiring voluntarily as one of negative factors for the bank’s profitability.
“The size of voluntary retirement benefits is highly likely to exceed the bank’s annual earnings,” NICE analyst Lee Ye-li said in report, Tuesday.
KR, which is owned by Fitch, shared this view with an expectation of a deterioration in the bank’s competitiveness in the market.
“There exists the possibility of an increase in SG&A (selling, general and administrative expenses), because of the costs of workforce reduction,” KR researcher Ahn Tae-young said, Monday.
Citigroup’s U.S. headquarters has already admitted that it expects to incur “significant charges” through the end of 2023 from the closure of its Korean consumer banking business.Internet Explorer Channel Network