Citigroup Sees Digital Banking Up in Asia; Revenues Rising

The U.S. banks are presently focused on the increasing automation of banking services. The latest in the line is Citigroup Inc. C, which anticipates its digital banking client base in Asia to double by 2019. This was stated by Jonathan Larsen, the bank's Asia-Pacific head of consumer banking, in an interview in Hong Kong last week, as per Bloomberg.

Citigroup expects approximately 15 million of its Asian customers to use online and mobile banking facilities over the next 5 years, driven by a rise in wealth among middle class. The increased use of digital banking will aid revenue growth and also boost the company's client accounts.

Additionally, Citigroup will not have to incur extra cost in setting up brick-and-mortar branches. Hence, the number of retail branches is expected to remain roughly same at 450, going forward.

Focus on Asia

Citigroup's Asia Global Consumer Banking business had nearly 33 million client accounts (retail banking and card accounts) as of Sep 30, 2014. The division recorded net revenue of $5.8 billion for the nine months ended Sep 30, 2014, accounting for nearly 10% of the company's total net revenue.

In Oct 2014, Citigroup announced strategic actions to quicken the transformation of Global Consumer Banking by concentrating on markets with significant growth potential. With nearly half of the 24 markets that the company is planning to serve located in Asia, it was again the company's main focus area.

Notably, Citigroup intends to exit consumer businesses in 11 markets by the end of next year, including Japan, Guam and Korea in Asia. Nonetheless, the company's Institutional Clients Group will continue to operate in these markets.

Further, as per October projections from the International Monetary Fund (“IMF”), emerging Asian economies including China and India will likely grow at the rate of 6.5% this year, which is more than triple the rate of 1.8% for developed countries. Hence, Citigroup is banking on the growth potential of Asian economies to alleviate the overall top-line pressure.

Our Viewpoint

Apart from Citigroup, other U.S. banks like JPMorgan Chase & Co. JPM and Bank of America Corporation BAC are driving their resources to improve automated banking services. These initiatives are expected to boost revenues going forward.

We believe that Citigroup's latest move will promote revenue growth from its international exposure at a time when the company is facing challenges owing to sluggish economic growth and stringent regulatory landscape in the U.S. Further, we believe these initiatives will reduce the company's expenses, drive operational efficiencies and support bottom line.

Currently, Citigroup carries a Zacks Rank #3 (Hold). A better-ranked bank is City National Corporation CYN, with a Zacks Rank #2 (Buy).