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(Adds details on banks, background)
By Taiga Uranaka
TOKYO, Aug 20 (Reuters) - Citigroup Inc is considering the sale of its Japanese retail unit and has approached about 10 banks, a source with direct knowledge of the matter said on Wednesday, as the U.S. banking company struggles to turn around its Japanese operations.
Citigroup's move came as Japan's banking industry suffers from weak loan demand and falling interest margins. Despite a recent pickup in lending, deposits still overwhelm loans as businesses and households remain cautious on spending.
Citigroup, whose presence in Japan dates back over 100 years, has decided to pull out of the unprofitable retail business as part of cost-cutting measures, said the source, who was not authorised to discuss the matter publicly.
Citigroup is preparing to sell the retail operations of Citibank Japan, which has 33 branches and about 3.6 trillion yen ($35 billion) in deposits, the source said. It had approached about 10 financial institutions including Japan's top three lenders and regional banks.
The U.S. bank will keep corporate and investment banking and trading businesses in Japan, the source said.
A Citigroup spokesman declined to comment.
Citigroup has been under pressure to overhaul its Japanese operations after repeatedly running foul of regulators since 2004, when it was forced to close its private banking business in the country due to poor money laundering controls. (1 US dollar = 102.9 Japanese yen) (Reporting by Taiga Uranaka; Additional reporting by David Henry; Editing by Jan Paschal and Stephen Coates)