Predictably Efficient!

With operations in over a hundred countries around the globe, 200 million customers, assets totalling US$1.1 trillion, net income in 2002 of US$15.3 billion, stockholders’ equity worth US$92.9 billion and 268,000 employees, Citigroup, the holding company of Citibank, is no doubt the largest financial services provider in the world. In 1998, the then Citicorp entered into a mega merger with the then Travelers Group, to form Citigroup. This was the biggest merger in the financial industry valued at US$73 billion, and was only second to the biggest merger in history; that of Exxon and Mobil which was valued at US$86 billion.

Over the last 115 years, Citibank has evolved dynamically into a giant financial octopus, straddling over the continents, setting up shop in both developed and emerging markets. The Kenyan branch, established in 1974 has always returned a profit. Between 1996 and 2001, its profit before tax oscillated between Kshs 445 to Kshs 699 million. However last year, the bank registered a profit before tax of Kshs 1.2 billion pushing up its growth by 66% and fixed revenue by 86%. According to the General Manager, Mr. Sridhar Srinivasan, 2002 was an excellent year for them in terms of profitability and revenue compared to the sector. Mr. Srinivasan, 42, attributed their performance to among other things their acquisition of the local franchise of ABN Amro Bank.

The resultant leveraged synergy enhanced the bank’s efficiency in service delivery and boosted its performance, making it this year’s MI Bank of the Year, up from the third position last year. Although Citibank is Kenya’s fourth largest bank in terms of total assets, it outdid Barclays, KCB and Standard Chartered Bank in most of the categories set as parameters for the survey. These include return on assets, return on capital employed, efficiency ratio, cost of funds and total non-performing loans to total advances ratio. The bank was awarded the lowest ranking score of 29 points beating Kenya’s two big banks, Barclays and Standard Chartered, who have been alternating in dominance. Standard Chartered was the runners-up with 34 points followed by Barclays with 61 points. KCB, bar its asset strength, performed dismally and was ranked 36th.

Citibank ranks sixth in the sector with one of the lowest non-performing loans portfolio of 3% which shows the bank’s prudence in lending and efficiency in debt collection. The Kenyan operation of Citibank is worth Kshs 30 billion in total assets and core capital of Kshs 3.8 billion. It led with placements with other banks to the tune of Kshs 7 billion up from Kshs 4 billion the previous year, a marked rise of 74% that testifies to its liquidity. It also led on interests on placements and bank balances although it was a drop of 8% from the previous years Kshs 230million to Kshs 210million. The banks other operating income rose by 65% while its interest on deposits dropped by 14%. Operating profits grew by 60% whereas profit before tax grew by 66%. Its forex earnings grew by 128% signifying professional treasury dealing in the bank. Total assets and liabilities grew by 9% and 10% respectively.

From the onset, the local operation embraced niche banking and offers a variety of financial services to corporate clients only. Mr. Srinivasan strongly believes that his bank is the best and safest in the country owing to its parental financial liquidity, reputation, global presence and expertise acquired over a century. Citibank is not incorporated in Kenya and operates as a direct branch of the parent bank headquartered in New York. It is prudent therefore not only to concentrate on the branch alone but also look at the bigger picture.

Today’s customers have become very enlightened, sophisticated and demanding. This means that for a financial institution to be the preferred choice, innovation and instant responsiveness have to be the driving force. Any bank that desires to position itself as a market leader has to be at the cutting edge of technology, product architecture and service delivery. Citibank has endeavoured throughout the world to be a step ahead of the competition by constantly and proactively evaluating existing and imminent customer needs and moving swiftly to address the same.

The global nature of the bank gives it a competitive advantage especially in the developing and emerging markets because they are able to offer similar first class products and services as in New York and London. Information technology has greatly enhanced Citibank’s global uniformity. The bank invested heavily in its Internet banking software, CitiDirect, which has on numerous occasions been rated as the best banking software by Forbes, among other international finance publications. It is a unique fully end-to- end central application that handles inquiry and transaction modules – cash management products.

While other banks use electronic banking, Citibank has a fully integrated Internet banking service. The main difference between the two is that the former involves dialling up, getting to the server so as to be provided with the service, while the later is web based and can be accessed at any time, anywhere in the world without the need of a server. Internet banking is efficient because in case of upgrading, changes are made centrally from one point then rolled-out to customers globally. With the electronic banking, upgrading and other changes are done individually to clients which apart from being tedious and time consuming, the software may be obsolete by the time the exercise is completed. But IT is largely an open field for competitors and hackers. The security system has to be a notch higher than the best hacker in the world. Citibank regularly updates CitiDirect’s security features and has only experienced an intrusion once in Russia.

Business commonsense demands that a provider evaluates the customer’s spending ceiling. Although Citibank offers top of the range products and services, it has to price them affordably and comparatively with the other players in the market. “In Kenya, we are offering a Rolls Royce for the price of a Peugeot,” says Mr. Srinivasan.

Citibank’s non-performing loans portfolio in Kenya is almost unbelievable compared to similar-sized players in the same economy. This is not by fluke or sheer chance. Mr. Srinivasan says that they emphasize on cashflow while lending rather than the traditional collateral. They examine the business model, viability, industry prospects and profitability of a loan seeker and only use collateral as a second way out. He believes that economic stagnation, corporate failure and the resulting loan defaults have made banks risk averse, hence making it harder to access credit. This, he says, is the reason why most banks prefer to invest in government securities that have low or no risk at all.

Citigroup has a well-established risk management system across the world that cushions its investments regardless of geopolitical and economic volatility. The system helps them remedy problems before they emerge. Their risk management framework espouses principles applied across the board in all countries of operation: Risk management is integrated within the business plan and strategy; all risks and resulting returns are owned and managed by an accountable business unit; risk limits are approved by both business management and independent risk management team; all risk management policies are clearly and formally documented; all risks are measured using defined methodologies, including stress testing; all risks are managed within a limit framework and all risks are comprehensively reported across the organization.

When Mr. Srinivasan enthusiastically hails Citibank and Citigroup as the best bank and the largest financial services provider in the world respectively, it is hard not to believe him. Citigroup is composed of a family of companies that includes Citibank, Citifinancial, Primerica, Smith Barney, Banamex, Travelers, Citistreet, Citi (cards) and Citigroup private bank. This gives it the largest distribution capacity of any financial services firm in the world, with 200 million accounts and 24 million Internet relationships in more than a hundred countries.

Citibank has 1,703 branches worldwide with 5,181 ATMs. Banamex, which deals in asset management and retirement services, has 1,422 branches and 4,631 ATMs. Smith Barney, providers of investment advice, financial planning and brokerage services has 12,690 financial consultants. Travelers which offers individual and group annuity, individual and corporate life insurance products has 15,000 agents. Citifinancial, which provides community based lending services through branch networks, regional sales offices and cross selling initiatives with other Citigroup businesses has a total of 2,186 branches. Primerica, which is involved in selling life insurance and other products manufactured by its affiliates, has 107,000 representatives. Citistreet has 554 representatives while Citi, the providers of MasterCard, Visa and private label credit and charge cards has 136 million cards. Citigroup private bank has 544 clients.

Citigroup is divided into four segments namely global consumer, global corporate and investment bank, private client services and global investment management. Global consumer, which includes cards, consumer finance and retail banking delivers a wide array of banking, lending, insurance and investment services through a network of local branches, offices and electronic delivery systems that include ATMs, automated lending machines (ALMs) and the World Wide Web, and serves individuals and small businesses. Global corporate and investment bank provides corporations, governments, institutions and investors in over 100 countries and territories with a broad range of financial products and services that includes capital markets, banking, and transaction services. Private client service provides investment advice, financial planning and brokerage services to affluent individuals, small and mid size companies, non-profit and large corporations primarily through a network of more than 12,600 financial consultants in more than 500 offices worldwide.

Global investment management offers a broad range of life insurance, annuity, asset management and personalized wealth management products and services distributed to institutional, high-net-worth and retail clients. The fifth segment, Citigroup International, manages the operations of the above four segments out of America from a geographic perspective. Citigroup focuses on nine well- defined product lines that operate within the four segments. These are global cards, global consumer finance, global retail banking, private client group, capital markets and banking, global transaction services, life insurance and annuities, Citigroup private bank and asset management.

This is indeed a big bank. As at December 31st 2002, total assets were $1.1 trillion, an increase of $45.7 billion or 4% from 2001. Total assets primarily comprised of loans (net of unearned income) of $ 447.8 billion (or 41% of total assets), investments of $169.5 billion (or 15% of total assets), trading assets of $155.2 billion (or 14% of total assets) and federal funds sold and securities borrowed or purchased under agreements to resell of $139.9 billion (or 13% of total assets). Total interest earning assets from continuing operations were $867 bilion compared to $803.1 billion in 2001. Supporting this asset growth was an increase of $56.4 billion (15% increase) in total deposits, $11.5 billion (8% increase) in short and long-term borrowings, $10.9 billion (14% increase) in trading account liabilities, $9 billion (6% increase) in federal funds purchased and securities loaned or sold under agreements to repurchase and $4.9 billion (30% increase) in investment banking and brokerage borrowings. Total stockholders equity increased from $5.5 billion to $86.7 billion.

Now you get the full picture of the colossus that is the Citigroup. Mr. Sandy Weill, the group’s chairman and CEO says, “Today, we hold the leading positions in the most profitable and highest growth business in global financial services. We have the most diverse and innovative product platform in the industry, with the largest distribution capacity. We are the most global financial services franchise in the world, doing business in more than 100 countries, and our expense discipline is second to none. We are uncompromising when it comes to being the lowest-cost operator, we manage risk conservatively, and we continue to excel in integrating acquisitions smoothly and efficiently.”

Since the Kenyan branch of Citibank is not engaged in retail banking locally, it works with development banks like IFC and DFID which set up lines of credit then channel funds to the customers. Mr. Srinivasan, a B.Com. graduate from Delhi University and a chartered accountant believes that for the size of the market, Kenya is overbanked. However, he notes that this gives customers options to choose from and makes the competition healthy. This enhances innovation and customer attention. He thinks that the reliance on non-interest incomes is a short-term adjustment and believes banks should innovate and add value to existing products.

Mr. Srinivasan, while appreciating that the Donde Act was drafted with the small borrower in mind, believes that natural market forces of supply and demand should be let to dictate the interest rates. “My hope is that the sector will behave responsibly to ensure regulation is not necessary. However, if it is enacted, we will comply,” he says. He is of the view that with all these banks in the country, customers actually have a broad range of financial providers to choose from.

Citibank aspires to be known as a customer centered institution. Their customer relationship management (CRM) ensures that there is a relationship manager for a given number of clients who becomes integral in the client’s financial undertakings, from inquiry to post-transaction services. Having worked with Citibank since 1984 in various capacities in India, Bangladesh and Zambia, Mr. Srinivasan appreciates the prevalent entrepreneurial corporate culture that lets one be in charge and tolerates honest mistakes. He is not afraid of mistakes and instead learns from them. He considers himself open and accessible and believes in hiring people better than him and getting out of their way, empowering and encouraging them to be entrepreneurial. “I don’t breath down people’s necks but I set clear goals to be achieved. I don’t micro-manage,” he says.

His constant challenges include maintaining brand value, measuring up to other branches across the world and managing operational risk. Married with two children, Mr. Srinivasan enjoys varied music, travelling and golf. He is optimistic that with the revival of the economy, things can only get better for his bank. Citibank supports Junior Achievement Award, Habitat and Operation Smile as part of its corporate social responsibility. The group has a performance rate card in which branch and regional managers have to balance between financial performance and community citizenship.