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RAM Ratings reaffirms Citibank’s AAA ratings
Published on 30 Nov 2022.
RAM Ratings has reaffirmed Citibank Berhad’s (the Bank) AAA/Stable/P1 financial institution ratings.
The rating action is premised on ready parental support from Citigroup Inc (the Group), the Bank’s strong franchise in the domestic wholesale banking arena, good profitability although potentially more volatile going forward, and improved asset quality following the sale of its consumer banking business. We further expect funding, liquidity and capitalisation metrics to stay strong.
On 1 November 2022, the Group completed the sale of its consumer banking business in Malaysia to United Overseas Bank (Malaysia) Bhd. The disposal falls in with the Group’s strategy to divest its consumer banking operations across 14 markets in Asia, Europe, the Middle East and Mexico. Citibank is still a strategically important entity of Citigroup subsequent to the divestment.
The Institutional Clients Group (ICG) business will be Citibank’s remaining franchise in Malaysia after the disposal of the consumer segment. Net loans are anticipated to shrink by around 70% while assets and deposits will be down by approximately 20% and 30%, respectively. Operating income will also be 50% lower. We expect the Bank to stay highly integrated with its parent and continue to leverage on the Group’s global network to serve institutional clients in Malaysia. Citibank has a strong business position in the ICG business (encompassing corporate lending, treasury and trade finance services, cash management, custodian services, derivatives and forex sales) but its revenue base going forward may exhibit higher volatility, given the sensitivity of some product segments to market conditions.
Citibank’s asset quality indicators will notably improve post-divestment as its main corporate clients are top-tier domestic names and multinational companies. The credit quality of its corporate and commercial portfolios remains healthy. As at end-June 2022, Citibank’s non-retail gross impaired loan ratio was only 0.4%. In terms of funding, non-retail deposits formed the bulk (64%) of customer deposits as at end-June 2022, largely sourced from the Bank’s cash management and transactional banking businesses. This increases the stickiness of the deposits.
Citibank’s common equity tier-1 (CET-1) capital and total capital ratios fell to 14.8% and 15.8%, respectively, as at end-June 2022 (end-December 2020: 18.0% and 19.0%) on account of a sizeable dividend payment to the Group amounting to RM1.3 bil (more than twice the Bank’s fiscal 2021 net profit). Despite large dividend payments over the years, the Bank has preserved a steady level of high-quality capital. Following the sale of the consumer banking business, the management aims to maintain the CET-1 capital ratio at around 15% to 16%.
Analytical contacts
Jeremy Noel Paul
03 3385 2556
jeremynp@ram.com.my
Chan Yin Huei
(603) 3385 2498
yinhuei@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2022 by RAM Rating Services Berhad
