Moody's warns Citibank Korea about credit risks

Citibank Korea's headquarters in Seoul / Courtesy of Citibank Korea

Ruling party supports union's protest against exit plan

By Park Jae-hyuk

Moody's Investors Service hinted that it may downgrade Citibank Korea's credit rating, saying it regards problems with employee relations arising from the bank's phased closure of its consumer banking unit here as a “social risk.”

“Korea has strict labor laws and regulatory guidelines that could bring about high costs and significant time needed for Citibank Korea to execute its restructuring,” Moody's Vice President Ok Tae-jong said in report. “This, in turn, will affect the bank's credit quality, including its capitalization and profitability.”

The credit ratings agency plans to focus on the bank's management of any issues that could arise with the union, when considering downgrading the A1 deposit rating and a3 baseline credit assessment of Citibank Korea.

Its outlook for the U.S. bank's local subsidiary is in stark contrast to another global credit ratings agency, S&P Global Ratings, which reaffirmed Citibank Korea's long-term issuer default rating at “A” with a stable outlook, despite its exit plan.

However, Moody's opinion supported the three domestic ratings agencies that expected Citibank Korea to face a decline in its market share and a significant cost for restructuring, including the workforce reduction.

The Citibank Korea union is currently threatening to take all possible measures, including going on strike, to prevent the shutdown of consumer banking operations, although management promised that employees will be offered compensation for retiring voluntarily and those who wish to continue working will be relocated to other departments.

The union also criticized the Financial Services Commission (FSC) for allowing Citibank Korea to phase out its retail banking operation without the proper approval.

“HSBC needed approval when it closed its consumer banking operation worth 1.7 trillion won ($1.4 billion), or 7.6 percent of its entire assets,” Citibank Korea union leader Jin Chang-geun said in a press conference, Friday. “It is nonsense that Citibank Korea does not need approval to close its consumer banking operation worth 20.8 trillion won, or 30.4 percent of its entire assets.”

The ruling Democratic Party of Korea (DPK) supported this claim, urging the financial regulator to take action to prevent the bank's exit plan from harming consumers and workers.

“If the FSC does not intervene in Citibank Korea's unilateral decision to liquidate its consumer banking operation, it will be considered to be neglecting risks to consumers and workers who will lose their jobs,” DPK lawmaker Rep. Kim Ju-young, who previously led the Federation of Korean Trade Unions, said in the party's supreme council meeting, Friday.