UnionBank’s Citi acquisition grows retail assets to $7.1 billion in 2022

Manoj Varma, head of consumer banking at UnionBank Philippines, discussed the integration of Citibank’s assets in the Philippines, and how this impacts UnionBank’s retail banking business.

UnionBank was initially considered an unlikely candidate to acquire the Citibank franchise. Citi went through an extensive and competitive auction process to arrive at their choice.

Varma explained: “It is expected for the bidding process to be highly competitive in terms of pricing.  Having said this, I think that UnionBank won the bid, not because of the price, but largely due to the other factors that were considered, such as focus on digitalisation; ability to execute the integration faster; organisational culture compatibility with Citi consumer business; and focus on customer-centricity, and other factors that would ensure both employees and customers of Citi consumer business will be taken care of.”

Ahead of the industry and before the pandemic, UnionBank had the foresight to undertake a customer-centric digital transformation strategy, becoming the first bank in the Philippines to do so. Since then, UnionBank has been pursuing migration to public cloud as part of its cloud-only strategy. Around 80% of UnionBank’s technology stack and applications are already running on public cloud infrastructure.

During the pandemic, UnionBank maintained an above-industry financial performance in retail banking. Between 2020 and 2022, the bank’s retail segment posted return on equity averaging around 22% and contributed an average of 50% to the bank’s net revenue.

With the addition of the Citi franchise, UnionBank now issues approximately 29% of all new credit card accounts in the Philippines market, based on credit card reporting agency, TransUnion, as of December 2022. The bank stands out as the only bank to-date offering fully end-to-end digital origination, issuance, and instant usage of credit cards.

The bank has further built on its open-banking initiatives. Its digital ecosystems include retail customers grown over the years through cash management solutions provided to anchor government and corporate clients. Around 60% of the Bank’s 12 million customer accounts are attributed to government and corporate clients.

From left: Sheena Gaboy, Research Analyst, TAB Global; Manoj Varma, Head of Consumer Banking, UnionBank Philippines; Chris Kapfer, Research Director, TAB Global

Citi was particularly keen on emphasising customer service capabilities and ensuring the future of its workforce. UnionBank, in this process, absorbed approximately 95% of Citi’s consumer business employees, or some 1500 employees in the Philippines.

Prior to the merger, UnionBank reported PHP 226 billion ($4.5 billion) in retail assets on their balance sheet in FY2021. Post-merger, by FY2022, this figure grew to PHP 356 billion ($7.1 billion), including Citi’s retail assets.

Contrary to the standard assumption that 15% to 20% of customers will attrite in any mergers and acquisitions scenario, UnionBank experienced net attrition of less than 1% in deposits and zero in loans. Today, UnionBank’s combined customer base stands at over 12 million.

In addition, UnionBank plans to launch significant enhancements to the product and service proposition for its Citi customers in the third quarter of 2023. The bank has already ensured that the exclusive rewards and perks for Citi customers will continue under UnionBank’s stewardship.

Varma is cognisant that he must address the global service proposition encompassing international fund transfers and the global wealth and investment expertise that Citi had offered its Citigold customers. His most substantial tasks lie ahead.

In terms of customer migration, all new customers to the Citi franchise, including wealth, loans, and deposits will be onboarded to UnionBank from July 2023 onwards. The migration of existing customers to UnionBank’s core system is planned for the end of 2023, aligning with the wealth management business’s transition to a completely new public cloud infrastructure.

If all goes according to plan, UnionBank will complete the migration within 18 months, an ambitious timeline. UnionBank, already the third-largest credit card issuer in terms of credit card billings based on data from the Credit Card Association of the Philippines as of March 2023, expects to manage combined assets under management in excess of $4.5 billion—total deposits plus investments managed by Wealth and Private Bank—by the end of 2023, positioning itself as a major player in the affluent and private banking sector.

Other ecosystems developed are digital customers using the UnionBank Online retail financial app, and retail individuals using the UBX platforms that offer cutting-edge features such as the i2i mobile teller machine and BUX payment gateway, where the majority of UBX recurring transactions originate from.

In August 2022, UnionBank legally acquired Citi’s retail franchise for a cash consideration of PHP 77.9 billion ($1.4 billion). The transaction covered Citi’s local credit card, unsecured lending, deposit and investment businesses, as well as Citicorp Financial Services and Insurance Brokerage Philippines, the arm that provides insurance and investment products and services to retail customers.