Consumer Lending in Japan: Citi CFJ

Agenda

CitiBank• Citibank was founded in 1812, as the city bank of

New York.

• Citibank has retail banking operations in more than 100 countries around the world.

CitiBank JapanYokohama in 1902 Maintained its presence without offering full-scale

services.Citibank in Japan provide services to:

1. Corporate2. Consumer 3. Investment banking 4. Brokerage operations and credit cards businesses

Consumer Finance Consumer finance has to do with the lending process that occurs between the consumer and a lender.How is it different than pawnbrokers or banks?

(Question addressed to the audience)

Defaulting LoansAlways been a problem, though not urgent due to Citi

CFJ’s financial backup from Citi group in the U.S.Improving economy results in less personal

bankruptcy and therefore less defaulting loans.

Lowering of Cap RatePossibility of a law lowering the interest cap to 25%

(CSL)All the loans with higher interest rate would decrease

revenue earnedAdministrative reconstructionArguably not a big issue due to the financial backup

from Citi group in the US

“Grey Zone”-interest2 Laws, ILL and CSLILL dictates 15-20% (depending on loan size)

addressing banksCSL dictates 29.2% addressed for Consumer Finance

Companies

Requirements for CSL• Registered lender• Loans deemed voluntarily• Lenders delivered printed documents that fulfill

specific requirements of loan.

Problems occur when lawyers argue that the third requirement is not fulfilled when lending through ATMs and/or internet.

LawsuitsTwo lawsuits affecting Citi:

1.Obligating lenders to disclose transaction history if requested by borrowers. 2.Loans charging “Grey Zone”-interest that does not fulfill the requirements is technically illegal.

Repayment of Excess InterestRuling deciding whether or not Aiful needs to pay out

excess interest. (Pending)If ruling is against Aiful it is highly likely that Citi CFJ

will have to repay all excess interest that has been charged on loans with an interest rate in the “Grey Zone”-area that was deemed not “Grey Zone”

Up to ten years back on any loan applicable

Example:

• A one million yen loan with a cap of 29.2%(CSL) is deemed unfulfilling because of lacking documents and should therefore be caped 15% resulting in Citi being deemed to repay 14.2% of excess interest for a possible period of 10 years.

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Management Style

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• 1980: major consumer finance companies entered Japan

• Support by Japanese government

• Failed to adapt

• Debt counseling & historical repayment record

• 1986: all U.S. CLC’s except Associates left the market

• Associates’ half Japanese CEO & employees

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Other medium/small consumer lending companies

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• Priva （プリーバ）

• Eiwa ( エイワ )

• Rakuten ( 楽天 )

• Nakano 　 （ナカノ・ラビット）

• Familia 　 （ファミリア）

• Alco System 　 （アルコシステム）

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Number of Manned & Unmanned Branches

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Cultural differences

Social obligations + lose face = ATM machines

-over-lending -multiple lending

Image issue

TRUST? Word-of-mouth

Lack of transparency

suicide Lawsuits

Grey zone

Financial debt

Excessive lending

confusion

Ethical dilemma

Good vs. bad

Positive life quality vs. negative

Help vs. take advantage

UTILITARIANISM: the greatest good for the greatest number of individuals

Profit vs. charity

Unstable Business

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Conclusion

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• Citi constantly needs to adapt to customer needs, reinforced by the process of acquisition and the maintenance of transparency. Additionally, they should be aware of new trends such as the unmanned branches since they proved to increase the risk of default and the threat of repaying overpaid interest.

• Smaller issues such as defaulting loans and lowering of cap rate is insignificant due to low risk as well as low impact as a result of strong financial backing. More importantly, the grey zones disputes end result; namely the possibility of repayment of interest is of the highest priority. In order to cope with this issue CITI needs to prepare for a potential huge amount of lawsuits by stacking up cash and lawyer up.

Cultural differences did not only create opportunities for Citi but at the same time it also accountable for a lot of challenges Citi needs to face. Culture influences the image issue as well as the ethical dilemma, while the biggest problem is remains as the instability of consumer lending. Citi needs to focus on winning people’s trust and being prepared to adapt to the upcoming rapid changes.

If we had more time...

we would like to look at:

1. Loan security2. Lawsuits

Relevant for improving Citi’s Profit

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Thank you for Listening!

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Questions?

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