Citi upbeat about white label credit

George Lekakis Branches of Foreign Bank
Citigroup Centre, Sydney. Photo: Paulscf
Citigroup Centre, Sydney. Photo: Paulscf

Citi Australia says its credit cards business returned to growth in the March quarter as a string of white label deals boosted average balances in its portfolio.

In an interview with Banking Day, Citi’s local chief financial officer Tim Sedgwick said he was confident the bank would be able to maintain growth in credit cards this year despite the recent drift of Australian consumers to other payments instruments.

“We’ve seen promising signs of growth in the first quarter and we’re confident of that continuing,” he said.

Data published by the Australian Prudential Regulation Authority shows that Citi expanded the value of outstanding balances on its cards portfolio by around A$20 million to $4.81 billion in the March 2019 quarter but the growth is expected to accelerate as recently negotiated white label arrangements are activated.

The big play for Citi this year is likely to be the launch of a new credit card it will issue and manage under a new agreement struck with online retailer,

The multi-year deal could deliver a rich pool of new cardholders to Citi given that Kogan is Australia’s fastest-growing retailer with an active customer base of around 1.6 million.

Citi also issues cards for Bank of Queensland, Suncorp, Coles, Qantas and a raft of credit unions.

While the return to growth was modest in the three months to the end of March, it was  a big turnaround from last year when the value of Citi’s credit card lending declined 3 per cent.

Sedgwick acknowledges that Citi’s card business shrank last year, but insists that the run-off was more severe for other lenders as Australian consumers continued to rein in use of credit cards.

“I’m very confident we will grow this year,” he said.

“Our market share is doing quite well as volumes decline across the market.”

Sedgwick says Citi is also targeting growth in mortgages this year, but the bank is not chasing all types of borrowers.

The focus will be on expanding the bank’s lending to affluent and high net worth clients.

“Growth is something we aspire to within that customer segment we talk about,” he said.

“We’re optimistic about our growth potential.”

Disclosures in Citi Australia’s 2018 financial accounts lodged with ASIC recently show that the bank has a Tier One capital ratio of more than 30 per cent – more than three times the average level required by APRA.

While that has led some commentators to suggest the bank is running a lazy balance sheet, Sedgwick insists that is not the case.

“We hold capital for a number of other Citi businesses in Australia on the balance sheet of the local banking subsidiary,” he said.

Citi Australia’s New York-based parent recently reported a 2 per cent rise in first quarter profit to US$4.7 billion.

The earnings improvement was mainly driven by lower expenses across its global operations, which nullified the impact of higher funding costs during the period.