Citibank decided to leave its retail business in Mexico. It is a global strategy in which the institution leaves consumer banking in several emerging economies to concentrate on wealth banking and operations in the United States. These are normal strategies among global companies that are based on strategic decisions about where to concentrate geographically and by type of business, in order to maximize their profits.
The decision does not affect Mexico, since users are protected and another institution will occupy the market space left by Citi. In fact, it is not so much a risk problem for the country, which maintains an important operation, around 50% of its portfolio. The authorities rightly warn that the risk to be avoided is to increase the concentration of the banking market dominated by a handful of bidders, since the last reform in the financial field did not solve this problem.
Now, the departure of Citi may even generate greater competition in the system and eventually promote the growth of the economy, since in its operation, focused on equity, it neglected innovation in other areas. CitiBanamex practically did not lend anymore, its loan-to-deposit ratio is 62.5%, and it stopped investing in technology.
Several reflections arise. One is, if the privatization model that bet on the control of systemic banking, the basis of the payment system by foreign banks, controlled in turn by foreign parent companies, as is the case of Citibanamex, was correct. The issue is that a possible cause of the partial departure from the North American institution is the asymmetric regulation, between the one that operates in its country of origin and the Mexican one.
This may be the reason why the third largest bank in the country has had very little activity, even in profitable areas, such as granting loans. The exit of Banamex, without there currently being a buyer, does not represent a risk to the financial system, despite its size, but it does generate an impasse in which one of the main banks will not make investments for a few months and therefore it generates innovation in the system, which does not contribute to financing the economy, nor to expanding the already low financial penetration in the country.
It is said that the reduction in Citi’s operation may be due to greater Mexican regulation, such as what was recently approved on the subject of Afores, but at the same time it is necessary for the country to advance in a regulation that leads financial institutions to take risk and invest to obtain profits in services that generate value, not as they do now, fundamentally in operations with high commissions.
The issue is whether the partial exit of Citibanamex is, in addition to an opportunity to promote greater banking competition in Mexico, with the participation of more players, a situation for institutions that do not have a parent company abroad and that, therefore, they are regulated only by the Mexican regulatory framework, whichever is most important in the payment system.
The good news is that the Mexican authority has the power to approve those who take control of the important segment of the market left by Citi, a $12 billion business, and therefore help consolidate a better financial system, with regulations and incentives more clear to the institutions.
Twitter: @vidallerenas
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A graduate in Economics from the Autonomous Technological Institute of Mexico (ITAM), he has a Master’s degree in Public Policy and Management from the University of Essex, United Kingdom, and a Ph.D. in Public Administration and Management from the University of York.