Citibank Indonesia - Case Study

According to the case study, Mr. Mistri is not new to the banking industry, he has been part of the organization for many years, and also has proved to be a successful executive in his current and prior roles. The budget submitted by Mr. Mistri was a reflection of his concerns about the risk return ratio of his branch, which is the return in terms of risk for a specific time period, oil prices decreasing based on the recession Indonesia is going through, and the high staff turnover, a situation that he also considers a serious constraint to the growth of the branch.

Raising a budget when your corporate office requires revision of the original is not an easy task. You can’t be too conservative, but being too aggressive is also a big risk. If it was a fairly easy decision, Mr. Mistri would have been the first one interested in raising the forecasted budget, not just because it measures the overall success of his operation, but also based on the incentives he would receive. In the case of a country manager, compensation based on performance could range up to approximately 70% of their base salary. The only thing that makes me question Mr. Mistri’s approach to his original budget is the fact that he decided to operate with a sovereign self-impose risk limit that is lower than the one approved from the corporate office. I understand he is responsible for both, managing risk and generating profit, but he might be too conservative in the eyes of the corporate office considering that he is performing under the risk limit approved by Citibank’s management. And sometimes, risks can be taken regardless of economic climate.

Scenario A

Without knowledge of the original budget it’s difficult to determine if the goal is particularly high ($0.5M - $1M). Assuming that the increase is high, my first instinct would be that Mr. Mistri communicates with his direct boss, David Gibson and explain that the budget was already aggressive considering the situation of the Indonesian economy at that particular time. It included some growth in revenue and a slight drop in profit. According to the experience and background of Mr. Mistri, his situation should be re-evaluated and trust the reasons why he submitted his original budget. He is the expert in that market, and he should communicate to both his direct boss and to the corporate office, the risks that involve in increasing the budget in a country going through a recession, his concern about the risk-return ratio, and the lack of human resources in his branch. Even taking in to account the politics and the risk of saying no to the corporate office, upper management should hear his concerns, considering Mr. Mistri’s background and long-term career at Citibank.

Scenario B

In a situation where Mr. Mistri has no other way other than increasing his budget, he should be very clear with upper management about the risk involved and the consequences this request might have.

Mr. Mistri could stop or reduce the bank’s participation in loans to the government and private companies, since these loans provide a much lower return and that money can be best put to use in some other accounts of the portfolio. But this scenario might bring significant consequences in terms of relations with the government and companies in Indonesia. At the same time he could also increase the total amount of money lent in Indonesia, with all the increase going to big commercial companies. But Mr. Mistri is aware of the conditions of the Indonesian economy and maybe it’s not a good time for Citibank to increase its exposure. Also the government would be affected in their country’s balance of payments and services accounts if Citibank starts loaning foreign money to the private sector at this time. This scenario might be somehow beneficial for Citicorp, but it could have political consequences with the Indonesian government.

Scenario C

Since some actual numbers were not provided in this case study, I would assume without seeing the different accounts in the portfolio, that Mr. Mistri could allocate funds differently. He could be more aggressive and use his maximum sovereign risk limit, make organizational changes, cut overheads, outsource some services and negotiate with his direct boss a lower percentage of the share reviewed budget for SE Asia. Maybe the increase in budget can be allocated differently among the other countries in the region, but it is a difficult assumption without seeing Mr. Mistri’s original budget, and the budgets of the other countries from the region.

Corporate companies should trust their executives that are working overseas in affiliate countries and their decisions. They are the experts in their markets. In this case, Mr. Mistri has a solid record as a country manager. I also understand when upper management requires an incremental change in a budget, but I also think they should provide tools to help the affiliate accomplish the new budget, without putting the local operation at risk.