Citibank has recently announced that it will exit the consumer business in Malaysia, where it has RM15bn book and 14% market share in credit cards (#3 behind Maybank/CIMB). Macquarie Equities Research (MQ Research) notes that Citi’s premium customer segment is attractive and could present cross-selling opportunities for an acquirer.

Read on for an excerpt of MQ Research’s report (20 Apr), where it remains constructive on banks outlook and reiterate its order of preference for Malaysian banking stocks, with RHB emerging as its top pick.

Food for Thought: What Is on Offer

• Citigroup (C US, Not Rated) has announced an exit from the consumer banking business across 13 markets, including Malaysia. In Malaysia, Citi has ~RM15bn consumer book (77% of total book) with RM9bn in mortgage loans (46% of book) and credit cards of RM5.1bn (27% of book). The credit card business, in MQ Research’s view, is the most attractive acquisition target. Citi boasts ~14% market share in Malaysia. Almost any bank that buys Citi (with the exception of OCBC) will leapfrog to the #1 market share in credit cards receivables.
• Citi also commands a premium customer segment (high income). This presents substantial cross-selling opportunities for the acquiring bank as well, especially with banks increasing the focus on fee/commission income. Citi is also sitting on high liquidity with 70% loan to deposit ratio (LDR) (3Q20); potentially attractive for foreign banks to boost liquidity and deposit base. Lastly, Citi’s card business appears to be fairly lucrative, generating ~ 25% of Citi’s non-interest income (NoII), and driving a peer-leading (foreign banks) return on equity (ROE) of 17% (pre-Covid).

Who Could be a Good Fit?

• If the regional business is sold as a portfolio (Taiwan, India, Malaysia, China, Thailand, Philippines, Indonesia), DBS has undertaken similar transactions in the past (for e.g. ANZ’s Asia retail businesses in 2016), though MQ Research notes Malaysia is not a focus market. Amongst the Singapore banks, MQ Research notes UOB has the most share in credit cards. For the Asean portfolio, CIMB has a presence in Thailand, Philippines and Indonesia. However, MQ Research does not think CIMB has appetite for mergers and acquisitions (M&A) at this juncture given the Covid-19 asset quality indigestion and expected goodwill write-off in FY21/22.
• Thus, only if Citi’s operations are carved up country-by-country, would MQ Research anticipate Malaysian banks as potential acquirers. In this scenario, MQ Research notes RHB has surplus capital, and a relatively undersized card business in Malaysia. Meanwhile, HLBK has a focus on high income customers.
• A major deterrent for local banks to acquire Citi’s portfolio will be the latter’s US Citizen/greencard customers, which would subject the acquiring bank to onerous FATCA reporting; introducing additional oversight from US regulators.

Outlook

• MQ Research remains constructive on banks outlook, and reiterate its order of preference: RHB > CIMB > HLBK > PBK > MAY > AMMB.

Source: Macquarie Research - 21 Apr 2021