Citibank Goes After Japanese Consumers

When Citibank opened its 10th retail branch in Japan over the summer, it handed out flyers reading, “Best Bank Citibank,” and offered crisp $10 bills to the first 1,000 customers opening certain foreign currency accounts.

Such aggressive marketing is unheard of in this country, where banks usually agree among themselves what is permissible strategy.

But Citibank has been challenging those rules lately--and shaking up the financial community--as it makes its first big push into consumer banking since establishing itself in Japan with an office in the nearby port of Yokohama in 1902.

America’s biggest bank, which had focused on Japan’s commercial banking sector, is one of the first companies to take advantage of the recent easing of restrictions on foreign banking resulting from pressure by Washington.

Recent policy changes by the powerful Finance Ministry have enabled Citibank to rent offices from Japanese banks, thereby avoiding prohibitively expensive real estate costs, and to establish trust banking operations. The Bank of Japan last year also lifted lending restrictions on foreign banks.

In addition, Japan’s 12 major banks allowed Citibank to become the first foreign bank to use their nationwide system of nearly 20,000 automated teller machines. Citibank customers have had access to only a fraction of that amount.

Citibank spokesman Osamu Shimamura says his bank plans to open at least two more branches by year-end and wants to set up a 50-branch network during the next decade.

But Shimamura says Japanese banks shouldn’t be concerned about his company’s foray into retail banking.

“We won’t compete with Japanese banks face to face,” he said. “Our target is niche people, those with international perspective. We want them to use Citibank as the second bank, a place for investment.”

Nonetheless, a number of Japanese banks have expressed concern over some of Citibank’s plans.

Citibank has asked for government approval to offer credit cards with lengthy terms of repayment, known as revolving credit. It also wants permission to sell securities based on those revolving credit card account receivables.

That would inject a new product into the nation’s financial markets and perhaps lead to government approval of Japanese banks marketing a number of other asset-backed securities.

“Some ideas Citibank has brought here . . . were totally new to us, something Japanese banks probably have never thought about,” said an official with the Finance Ministry’s Commercial Banks Division, who requested anonymity.

“Such an approach certainly contributes to liberalization of the market,” said the official.

An assistant manager of Sanwa Bank’s capital markets department was more blunt, saying, “Citibank’s move could change the entire financial market structure in Japan.”

Yukihiko Endo, a senior researcher with Nomura Research Institute, says Citibank has clearly benefited from U.S. government pressure on Tokyo.

“Japan is afraid that the U.S. government would show reciprocal discrimination to Japanese banks if Citibank’s breakthrough failed,” he said. “The Finance Ministry is trying to bring up Citibank as a successful example of a foreign company (in Japan) to reduce trade frictions.”