(Updates with comment from analyst in fourth paragraph.)
April 8 (Bloomberg) -- Citigroup Inc.’s South Korean lending unit plans to close almost a third of its branches as profits shrink in the nation.
Citibank Korea Inc. will shut 56 of its 190 branches and concentrate on six major cities including Seoul to focus on digital banking, the company said in an e-mailed statement today. The bank didn’t say when the closures will be completed or how many jobs may be cut.
Chief Executive Officer Michael Corbat is scaling back Citigroup’s consumer operations in some nations and focusing on more affluent clients in the largest cities to improve returns. Record household debt has crimped banks’ earnings in Korea, with Standard Chartered Plc writing down the value of its local unit by $1 billion last year.
“It seems to be an inevitable choice for Citibank Korea as it faces falling profit,” said Yoo Sang Ho, a Seoul-based banking analyst at HI Investment & Securities Co. Shutting branches “may be the one of few ways it can address its difficulties in the Korean market.”
The closures reflect the “long term” trend of lower profitability in Korea’s banking sector as well as changing consumer needs in a country where nine out of every 10 banking transactions take place outside a branch, Seoul-based Citibank Korea said in the statement.
“Citi is repositioning its consumer business to Korea to reflect market conditions and the changing preferences of our clients towards digital banking channels,” James Griffiths, a spokesman for Citigroup in Hong Kong, said by e-mail. “These actions will ensure a long term annuity of sustainable growth for Citi’s retail business in Korea.”
The bank is talking “with all related parties to ensure we are providing all the necessary support to any staff who may be impacted,” Oh Young Ran, a spokeswoman for Citibank Korea in Seoul, said in a separate e-mail.
Citigroup’s Chief Financial Officer John Gerspach said in January that the New York-based firm is preparing to trim branches in Korea outside big urban areas to concentrate on wealthy customers. Profit at the Korean unit fell 8 percent last year to 219.1 billion won ($208 million) as interest revenue declined, the company said last month.
Combined profit at all 18 banks operating in South Korea fell 46 percent from a year earlier to 5.1 trillion won last year as the net interest margin shrank to the lowest level since at least 2003, data from the country’s Financial Supervisory Service show.
The Korean banking unit, which opened its first branch in 1967, is the smallest by assets among seven banks with nationwide networks. Its operations expanded following the $2.7 billion purchase of Koram Bank in 2004.
Standard Chartered in August said South Korea is the bank’s “most difficult market’’ and a source of bad debts as the country’s personal debt rehabilitation plan spurred a jump in loan impairments.
Citigroup’s capital plan was among five that failed Federal Reserve stress tests last month, blocking its attempt to quintuple its quarterly dividend to 5 cents and put in place a $6.4 billion share buyback.