In an effort to capitalize on the emerging credit card industry
in China,
Citigroup Inc.
(
C
) started issuing its first credit card under its own brand in the
country. This marks a milestone for Citi -- the first U.S.-based
bank to introduce its own credit card in China.
Notably, Citi had received approval from the China Banking
Regulatory Commission in early February this year. The company
already has a co-branded credit card business in China with
Shanghai Pudong Development Bank. This venture took off in 2003.
Following Citi's credit card business launch, the program with
Shanghai Pudong Development Bank will end. Citi will join forces
with China UnionPay for its payment processing services.
As a matter of fact, prior to 2008, foreign companies were only
allowed to issue credit cards in collaboration with local
companies. Similar to Citi,
HSBC Holdings PLC
(
HBC
) has a co-branded card with Bank of Communications Co.
Regulators have been slow in approving foreign companies' direct
participation in this business and presently, only Hong Kong-based
Bank of East Asia is permitted to issue credit cards in mainland
China.
Citi currently has its business in institutional and consumer lines
in China and we expect this credit card business launch to boost
its growth momentum in the country. This is a strategic move for
Citi, given the fact that even with a vast population and rising
income, the number of credit card users in China is comparatively
low.
According to a Wall Street Journal report, which cited Central-bank
data, China's credit cards issuance was approximately 268 million
by September 2011. This was over 5 times the figure at 2006 end.
Moreover, referring to estimates of
MasterCard Inc.
(
MA
), the report pointed that credit numbers in China will reach a
whopping 1.1 billion in 2025 while expenditures on those cards will
be around $2.5 trillion. Therefore, opportunities in the market are
enormous and Citi plans to leverage on that to build its card
business.
As a matter of fact, faced with a slowdown in the U.S. market, Citi
is emphasizing growth in the international markets. The company has
an impressive overseas presence and is striving to expand and tap
opportunities in the emerging markets.
Earlier this month, Citi's securities joint venture (JV) in China
with Shanghai-based Orient Securities Co. - Citi Orient Securities
Co., debuted. The JV is engaged in investment banking activities
including securities underwriting and sponsoring. This partnership
was announced in June last year, and received regulatory approval
earlier this year.
Citi's efforts to expand its business in China are part of its
strategy to explore the thriving economy and booming consumer and
commercial market. Citi's global network will be enhanced and its
revenue base is expected to benefit by leveraging on faster-growing
economies, thereby strengthening its market share internationally.
We expect such efforts to bear fruit in the future.
Citi currently retains its Zacks #3 Rank, which translates into a
short-term Hold rating. Considering its fundamentals, we have a
long term Neutral recommendation on the stock.
CITIGROUP INC (C): Free Stock Analysis Report
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MASTERCARD INC (MA): Free Stock Analysis Report
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