Citi’s $1 billion push ‘won’t alter’ Mexican dynamics
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Citi’s $1 billion push ‘won’t alter’ Mexican dynamics

Internal analytics, not retail price war, behind the move; strong growth expectations prompt high bank valuations.

Jose Marcos Ramirez-600

Banorte’s CEO Marcos Ramirez

Citi’s $1 billion investment in, and rebranding of, its Mexican business as Citibanamex will not spark fiercer competition, according to both Citi and one of the biggest domestic players.

Citi insists its strategy is about focusing on its existing client base. “Our decision to invest in this commitment as ‘Citibanamex’ is in response to our customers’ needs, the challenges of our globalized world and the opportunities that we now have as an institution and as a country,” says a bank spokesperson.

Citi’s investment in its digital platform follows similar moves by large incumbent players such as Banorte, BBVA and Santander, and by others hoping to build market share, such asScotia’s Mexican subsidiary. This suggests an increasingly competitive retail business in Mexico, with potentially lower net interest margins (NIM) as banks compete to win new customers. 

But Banorte’s CEO, Marcos Ramirez, says this is a mischaracterization of the country’s banking market. “It’s important to understand the Mexican market: the large banks – Citibanamex, BBVA, Santander and ourselves – have enough scale inside our client base to see potential growth on a steady basis without going aggressively into the market and poaching clients from one another,” he says, after announcing third quarter results that saw his bank’s total net income grow by 8% and 16% quarter-on-quarter and year-on-year respectively. 


Banorte’s strong results were largely down to its ability to grow its total loan portfolio by 11% over the same period last year, despite an increasingly conservative approach to risk (NPLs fell by 10 basis points to 2.2%).

Ramirez expects continuing credit growth of between 11% and 13% through implementing improved analytics of its existing customer base, rather than seeking to attract new customers from rival banks.

“If we were looking into an open market it would be difficult to predict the loan growth that I mentioned [11% to 13%] but we continue to see pretty strong opportunities on the payroll book – to penetrate that book [with new credit products],” he says. “Credit cards and car loans continue to be more attractive to our clients and we are basically working with the clients we have. When we look up the numbers for the budget we don’t think about a poaching market strategy – we concentrate on asking ourselves what is the pace of growth that we can build our book based on the clients we have. We are moving a lot more into pre-authorized credits instead of new entrants to the book.”

Similar approach

Citi says its approach is similar: for example, its investment in technology is aimed at increasing existing customers’ use of digital channels. It is developing a cloud-based strategy, particularly in the area of customer services and post-sales, a new payment infrastructure and automated processes designed to offer rapid and secure multichannel services. 

Today 30% of its transactions are carried out digitally but the bank hopes to increase that to 65% within a few years. That will have an impact on the bank’s efficiency ratio – which, at 56.6% in June, is one of the highest in the system (Banorte’s is 45.1% and BBVA’s is 41%). Citibanamex declines to provide its internal efficiency target.

The growth in digital banking is both a response to, and a driver of, rapidly changing customer behaviour. There is unprecedented growth in mobile banking in Mexico, according to a UBS banking report published in October. Banking industry managers expect the proportion of Mexican bank customers using mobile banking to rise from 19% two years ago to 61% within three years, the report says. By 2019, mobile is set to become the leading distribution channel, accounting for 49% of all banking transactions, compared with in-branch transactions at 27%. 

Despite the investment in Citibanamex’s digital platform, the bank is still seeking to expand its physical presence and plans to install more than 2,500 new ATMs in the country. The $1 billion investment is roughly 10% of the capital that Citi is raising through its sale of businesses furthersouth in the region – most recently in Brazil, Argentina and Colombia. The decision to remain in Mexico shows the attractiveness of its banking market, despite disappointing economic growth. Bank valuations are, with exceptions, close to twice book value as the mid-term credit growth dynamics continue to offer potential not seen in many emerging markets.

HSBC unveiled its own $293 million-equivalent investment in HSBC Mexico, soon after Citi’s announcement of its $1 billion capital injection into Citibanamex. HSBC says its decision to invest in its Mexican subsidiary displays its clear commitment to remain in the country despite persistent rumours that it may be looking to sell up.

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