RAM Ratings Reaffirms Citibank’s AAA Ratings

RAM Ratings has reaffirmed Citibank Bhd’s AAA/Stable/P1 financial institution ratings, premised on its expectation that the Bank will continue to derive extraordinary support from its parent, Citigroup Inc (the Group). The Bank remains a strategically important entity to the Group despite the ongoing exercise to dispose of its consumer banking business in Malaysia. 

The Institutional Clients Group (ICG) business will be Citibank’s remaining franchise in Malaysia after the disposal of the consumer segment. The latter is closely aligned with Citigroup Inc’s strategy to exit the consumer banking business in 13 markets. We expect the Bank to stay highly integrated with its parent and continue to leverage the Group’s global network to serve institutional clients in Malaysia. Citibank has a strong business position in the ICG business (which encompasses 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 as certain product segments are more sensitive to market conditions.

The disposal of the consumer banking business is progressing according to the Bank’s internal timeline and is anticipated to be concluded in 2022, subject to regulatory approval. The sale will scale back the loan base by an estimated 75% but reduce assets and deposits by only 20% and 30%, respectively. 

We expect Citibank’s asset quality indicators to hold up well after the disposal of its consumer banking business. The credit quality of its corporate and commercial portfolios is good. Strains in the past had largely stemmed from the retail segment. That said, the Bank’s headline gross impaired loan (GIL) ratio increased to 1.3% as at end-September 2021 from 1.0% as at end-December 2020 on account of corporate exposure in a vulnerable sector. This also caused the GIL ratio of the non-retail portfolio to tick up to 1.0%, having typically trended below 0.5% in the past. GIL coverage ratio stood at 217.2% as at end-September 2021, affording the Bank ample headroom against any credit risks should economic recovery stall. About 11% of total loans are currently under relief, which is notably below the level observed for the industry.

We expect Citibank’s funding and liquidity profile as well as its capital position to remain strong. Non-retail deposits are primarily sourced from its cash management and transactional banking businesses. This increases the stickiness of these deposits. The Bank’s liquidity coverage ratio and net stable funding ratio were comfortably above the respective regulatory minimums as at end-September 2021. Despite high dividend payments over the years (in fiscal 2020, all profits were flowed out to the Group as dividends), the Bank has preserved a steady level of high-quality capital. Common equity tier-1 capital and total capital ratios were a respective 17.5% and 18.5% as at end-September 2021 (end-December 2020: 18.0% and 19.0%). The Bank is expected to keep capitalisation robust going forward.