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Citi eyes sale of Japan retail banking unit

Japan ScenicsJapan Scenics
Record-low rates and shrinking loan opportunities mean this game doesn't add up for Citi any more. Robert Alexander--Getty Images

Citigroup (C) is thinking about selling its retail bank network in Japan after failing to build an operation big enough to justify its costs, according to reports in the Wall Street Journal and Financial Times.

The move would be a landmark in Citi’s strategy of focusing on markets where there is more growth potential, and in its efforts to satisfy both regulators and investors by streamlining its business. It would follow a similar move by global banking rival HSBC Holdings Plc (HBC).

Despite signs of a recovery in the Japanese economy over the last year, a shrinking population and a completely saturated banking market mean there are few opportunities for growth there at the retail level.

There is also precious little money to be earned by lending at a time when the highly aggressive monetary policy of the Bank of Japan is keeping a firm lid on short- and long-term interest rates.

With deposit rates at all-time lows, Japanese customers are increasingly turning to other savings and wealth-management products to get a return, but Citi has already withdrawn from asset management and brokerage there, and was forced to close its private-banking unit by regulators in 2004.

The WSJ reported that although the retail bank, with $38 billion in deposits, isn’t particularly profitable, it could be attractive to other Japanese banks because its customer base is relatively wealthy.

Citi has already shed some of its less profitable retail operations in the last two years, including those in Turkey, Honduras, Uruguay and Paraguay.