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Banking & Finance

Citi cuts 75% of South Korea branches as Western banks struggle in market

Goldman closes local banking unit, while UBS and Barclays set to withdraw

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A woman sits next to an advertisement board for interest rates of savings deposits for Citibank in central Seoul.   © Reuters

SEOUL -- For Western banks, the South Korean market has long proved to be something of a graveyard, due to tough competition with local players, conflicts with strong trade unions and unfavorable treatment by the local regulator.

Several global names, including Citibank, HSBC and Standard Chartered, have entered the retail market in Asia's fourth-largest economy since the region's financial crisis in the late 1990s, but few have been successful in expanding their presence.

The latest setback is at Citibank, which plans to shut down three quarters of its 133 branches in the country by the end of this year. As part of the downsizing strategy, its local unit closed five branches on Friday.

Citibank Korea said that the closure of its physical branches would help it cope with digitalization in the industry, but analysts said declining earnings had pressured the lender to take this drastic step. Its 2016 net profit tumbled 43.9% from a year earlier to 156.8 billion won ($136 million).

At the same time as cutting branches, Citi said it was setting up five big wealth management centers in the metro-Seoul area which will offer team-based private banking services for wealthy customers.

"We do not have a set target for branch numbers," said Brendan Carney, consumer business head at Citibank Korea, adding that "it is an outdated model given the rapid advancement in digital and the changing banking habits of our clients." In an emailed statement to the Nikkei Asian Review, Carney stressed that there will be "no impact on staff numbers but the branch network will be optimized further as part of this transformation strategy."

Western banks focusing on corporate and investment banking are faring no better. Last month, Goldman Sachs, the Royal Bank of Scotland and BBVA shut their banking branches in Seoul, partly to follow their global strategies, but also due to declining profitability in the market. Goldman will still run its securities unit in the country.

Goldman Sachs' net loss reached 13.9 billion won last year, down from a net loss of 10.7 billion won a year earlier, hit by tough competition in the derivatives market and paltry investment profits amid low interest rates. The regulator said that UBS and Barclays had announced their plans to withdraw from the local market and were expected to file for regulatory approval for the move in the second half of this year.

HSBC Korea pulled out of the retail market back in 2013, after its failed attempt to buy Korea Exchange Bank from Lone Star Funds in 2008. The British banking group signed a deal to acquire a 51% stake in KEB with the U.S. private equity group, but the financial regulator did not approve the deal, due to Lone Star's ongoing legal disputes with the authorities surrounding its investment activities in South Korea.

Standard Chartered Bank Korea, which emerged from the London-based bank's purchase of Korea First Bank in 2005, suffered from a large-scale labor strike in 2011 following the introduction of performance-based wages, with protests from union members seeking to preserve a seniority-based system. The conflicts led to poor performance, fueling rumors that Standard Chartered would withdraw from the local market.

The South Korean arm of the lender is now recovering from a long slump since new Chief Executive Park Jong-bok took over and initiated a strong reform drive. However, analysts say that the local bank still has a long way to go to regain the glory it held as one of the country's top three banks before the Standard Chartered acquisition.

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