Citigroup Inc is preparing to sell its Japanese retail banking operations, a source with direct knowledge of the matter said yesterday, as it waves the white flag on a venture plagued by regulatory troubles and anaemic lending.

The company which pioneered 24-hour ATMs in Japan and was the only foreign bank to make a major push into its retail banking sector is throwing in the towel after failing to gain enough scale to justify its costs.

Citigroup has also signalled a desire to refocus its overseas strategy on growth markets and away from saturated mature markets such as Japan, where it has been doing business for more than a century.

Citigroup is throwing in the towel after failing to gain enough scale to justify its costs

Citi has approached Japan’s top three lenders, Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group and Sumitomo Mitsui Financial Group (SMFG) about a sale, as well as regional banks, said the source, who was not authorised to discuss the matter publicly.

The US bank will keep corporate and investment banking and trading businesses in Japan, the source added.

Industry officials say it may be difficult to find a buyer for a modest retail banking operation with weak loan demand and falling interest margins, and which has had regular run-ins with regulators.

“The company has been penalised three times by regulators so there are issues with compliance that would make us cautious,” a senior financial industry executive said. He asked not to be named because of the sensitivity of the matter.

Citigroup had 33 retail branches as of end-March, ranking 30th among 64 top-tier regional banks in Japan. But its loan book, with an outstanding balance of 356.2 billion yen, was near the bottom of the list.

Lending has been sluggish in Japan overall, as corporations sitting on massive amounts of cash are reluctant to borrow or invest aggressively with domestic growth prospects looking limited, while dull wage growth has left households cautious about spending.

While it offers domestic mortgages and loans, its main appeal to customers has been global services such as local currency withdrawals from overseas ATMs, industry officials say.

Prospects for a sale could be dampened by worries that customers would flee if their deposits changed hands to a Japanese lender and they lost access to Citi’s global banking network.