Citibank Korea, the South Korean unit of Citigroup, has started to look for buyers for the lender’s consumer banking operations, industry sources said Sunday.

The Korean subsidiary recently conveyed its willingness to receive letters of investment intent to a number of potential buyers interested in the lender’s retail banking unit, through its merger and acquisition division as well as Citigroup Global Markets Korea Securities -- the US banking giant’s local subsidiary in charge of brokerage services, they said.

The list of potential bidders might include second-tier financial institutions, OK Financial Group and DGB Financial Group, observers said, citing their aspirations to enter the top-tier banking sector. 

The latest move came after the bank reportedly decided to push for selling its retail banking operations as a whole, which comprises their wealth management, credit card business and lending services. The reorganization plan led by its headquarters involves pulling out consumer franchises in Australia, Bahrain, China, India, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam. 

“We’ve been placing a higher priority on selling the bank’s retail business as a whole, among the other two options -- selling off parts of retail businesses and liquidating the consumer banking operations in phases,” Citibank Korea CEO Yoo Myung-soon said in a meeting with employees last week.

“Over the next three or four weeks, we’ll focus on looking for potential bidders. The management will continue to strive for finding a reorganization measure that benefits the company itself as well as employees.”

However, the sale of Citibank Korea’s retail operation could face a setback, some experts suggested, citing its high labor costs.

The average annual income of Citibank Korea employees, for instance, surpassed 110 million won ($99,000) last year, data showed.

In addition, investors interested in the proposed sale could also feel burdened by a significant amount of severance pay. The average length of service of Citibank Korea employees stood at 18 years, much higher than other commercial banks with 15. 

Under current regulations, workers’ severance pay is calculated based on the average of the salary they received in the last three months before they retire.

If Citibank Korea fails to draw bidders, the foreign bank could follow the path of UK-based lender HSBC’s move to liquidate its retail business in 2013 which saw 90 percent of its employees from the consumer banking sector retire voluntarily, they added. 

Fearing that the sale may result in mass job losses, Citibank Korea’s labor union held talks with Financial Services Commission Chairman Eun Sung-soo Friday to urge the authority to keep a close watch on the bank as to whether it maintains its workforce during the sales process. 

The number of Citibank Korea employees stood at 3,500 as of the end of last year. Among them, nearly 940 work in the bank’s retail banking sector, data showed. 

The current Banking Act stipulates that foreign banks should gain approval from the financial regulator to sell off their operations to other firms. The financial authorities, meanwhile, are obliged to examine whether the banks have specific plans to ensure their employees’ job security during the sales process. 

By Choi Jae-hee (cjh@heraldcorp.com)