Citibank Korea, the South Korean unit of Citigroup, said Monday that it has decided to shut down its consumer banking operations in phases, instead of selling them off as planned. 

Citing constraints in finding potential buyers with intentions to buy the units in one piece, the bank said plan B is to minimize customer inconvenience and protect employees’ jobs. The announcement, however, has drawn strong opposition from unionized workers who say the envisioned closure of Citibank Korea’s retail business would inevitably lead to mass unemployment. Market observers say the bank’s high labor costs appear to have been a major hurdle for its sell-off plan at a time when offline consumer banking has been on a rapid decline in the face of fast-emerging fintech.

The decision came six months after the US banking giant made a global announcement that it would pull its consumer banking units out of the Asia-Pacific region. The following month, Citibank Korea started to seek buyers for its consumer banking operations, and multiple prospective buyers have submitted letters of investment intent to the company. The sales process, however, has been postponed due to differences over terms of the sale, with potential bidders opting for partial purchases of the retail banking division’s credit card and wealth management businesses, instead of the entire unit, according to officials.

“With a high priority on the sale of retail banking business to another financial firm, (Citibank Korea) reviewed various consumer banking business exit strategies, but we decided to shut down our consumer banking operations in phases, due to physical constraints,” the Korean subsidiary said in a statement.

For a gradual phase-out of its consumer banking division, the bank will implement a voluntary retirement program for its employees after consultations with the labor union. Out of the total 3,500 employees, the firm’s retail banking service comprised 939, as of June. It earlier offered up to 700 million won ($594,000) in special severance pay. As for workers inclined to stay with the company, it will review measures to reassign them to other service fields, in a gesture to protect employees’ job security, the company added. 

Meanwhile, the bank plans to allow existing customers to use retail banking services until the termination date of their contracts. However, it will suspend all new subscriptions to its consumer financial products and services. Further details about the changes will be announced soon, they added. 

“Citibank Korea will comply with laws and regulations related to the phased liquidation process, while minimizing any inconvenience to our customers and implementing employee protection measures, including a voluntary retirement program,” Citibank Korea CEO Yoo Myung-soon said. 

“We have been in Korea for more than half a century and are committed to supporting growth and progress in the country. We will continue to invest in and grow our market leading institutional franchise in the country.”

The union, however, blasted the bank for its failure in the sell-off plan and threatened to take “countermeasures.”

“The lender should take more time to look for potential buyers interested in buying the entire retail banking business rather than resorting to shutting it down. We will take systematic countermeasures to nullify its decision,” said Jin Chang-geun, head of the Citibank Korea labor union.

The union also demanded that the Financial Services Commission not allow Citibank Korea to gradually shut down its retail banking services. 

The policymaking FSC, for its part, said “procedures are underway to review whether the foreign bank’s withdrawal of its retail banking is subject to the regulator’s authorization, according to the nation’s banking act.”

“We will closely monitor future progress regarding the bank’s latest decision and promote measures to minimize any possible consumer inconveniences,” it added.

Citibank Korea, which entered the local financial market in 1967 by launching a corporate banking branch in Sogong-dong, Seoul, began to operate its retail banking services in 1986, becoming the first among foreign lenders to do so.

By Choi Jae-hee (cjh@heraldcorp.com)