Citibank Indonesia

How does the Citibank budgeting process work? Is this a Participative process?

Citibank applies two management processes to control its international branches: sovereign risk limits review and operating budget review. Its budgeting process is a bottom-up. Although it starts from the headquarters’ instructions which guide the timing, format and issues needed to be addressed, budgeting is not obliged to attain specific targets. The corporation’s long-term goals are shared. Some international branches such as Indonesia, however, often establish their own targets since they traditionally excel the corporation’s goal. Like the sovereign risk limits setting process, the country managers seem to have responsibility to modify their goals based on a better understanding of their own branches about the economic conditions and political relations.

A revenue budget is the usual starting point for the operating budget because many costs depend on the bank’s operations which generate the revenue. Therefore, the accurate projection about major customer account is needed for banks. In Citibank, once the operating managers receive the budget instructions, they prepare forecasts of the major account relationships and discuss about the forecast until it is able to be reconciled with their target profits. Then costs are considered.

According to the budgeting process above and Mr. Mistri, Indonesia’s country manager, Citibank is implementing participative budgeting process. Every level of managers is involved in budget review process and lower management level leads more revision than higher levels do. This is partly because managers’ incentive compensation is closely combined with budget-related performance. This compensation scheme brings more participation of lower-level managers and the participation creates more commitment and accountability toward the budget.

What challenges does Mistri face, and what options are available to him?

Citibank’s manager at corporate raised the Southeast Asia division’s after-tax profit goal by $4 million, and Indonesia’s share of this raise should be between $500,000 and $1,000,000. Since the budget Mr. Mistri submitted was already very aggressive, he is concerned the increase of profit goal. Followings are challenges he is facing.

First, high employee turnover has been a problem for Citibank. Citibank invested lots of money to human resources providing high quality training to its employees. Therefore, the brain drain is a serious constraint to its growth.

Second, Indonesia’s economy recession is a concern for Citibank. Indonesia is highly dependent on revenue from oil sales. Due to the decrease in oil price worldwide, its short-term outlook is not optimistic.

Third, the political relation with Indonesian government is also a big constraint for Citibank. Citibank has been privileged in Indonesia because it is the largest foreign bank operating in Indonesia and it provides loans to the Indonesia government. If Citibank lessens its participation in loans to governmental agencies, it will cost a lot in terms of relations with the government.

Based on the understanding above, Mr. Mistri has some available options to increase profit.

First, he can increase its revenue by expanding the operation in Indonesia. Among its three activities - institutional banking, individual banking and capital market group, the capital market group seems to be the most profitable activity because the group can generate revenue with less costs and risks. Since the capital market group serves as an intermediary in flows of funds from providers and users, Citibank does not need to bear risks by lending their money in Indonesia whose economy is on the downside and to increase costs by hiring more staff to serve the customers. It can also adopt slightly higher customer service fees to increase its revenue causing little resistance from customers.

Second, he can achieve the profit goal raise by decreasing its costs. As mentioned above, Citibank is suffered from the loss from high turnover and the higher employee retention would save lots of costs for them. I believe that high quality training will be a valuable asset for the group in the long term. Therefore,

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