By Andres Gonzalez

Conglomerate Grupo Mexico is set to buy Citigroup Inc's retail banking operations in Mexico for about $7 billion in a deal that could be announced as early as this week, according to a person familiar with the matter.

As part of the deal, Citi will retain a roughly 10% stake in the Banamex unit, the source said, requesting anonymity as the discussions are confidential.

Citi could choose to sell the stake to Grupo Mexico, which is controlled by billionaire German Larrea, or other potential buyers in the future, the source said. Another option could be to list the stake on public markets, the source added.

Reuters had reported in February that Grupo Mexico's proposed deal for Banamex could value it at $7 billion or more.

Citi declined to comment. Grupo Mexico did not immediately respond to a request for comment.

Citi announced plans to offload the unit more than a year ago as part of an effort from Chief Executive Officer Jane Fraser to sell some international operations to simplify its business.

Over the past year, Citi has exited and sold some retail businesses in several countries across Asia and other parts of the world.

Several other potential buyers, including fellow Mexican billionaire Carlos Slim dropped out of the auction process to buy Banamex, according to the source.

The business also attracted the interest of foreign competitors with operations in Mexico such as Banco Santander, the source said.

Bloomberg reported on talks advancing between Grupo Mexico and Banamex earlier on Tuesday.

(Reporting by Andres Gonzalez in London, additional reporting by David French, Saeed Azhar and Isabel Woodford; Editing by Anirban Sen and Jamie Freed)