Citibank offers global presence and expertise for SMEs

Mon, 07/28/2008 12:06 PM  |  Business

Citibank has been big in high-end corporate lending and services. Now it is beginning to reach out to small and medium enterprizes (SMEs), The Jakarta Post's Mariani Dewi spoke with Citibank's Indonesian Managing Director and Country Business Manager for Citi Markets & Banking, Tigor M. Siahaan, about the prospects of this sector and his views on the banks' appetite for lending in the current economic climate.

Question: Why focus on small and medium enterprizes?

Answers: We started the SME business about a year and-a-half ago. We hire a lot of people in Jakarta, Medan, Surabaya and Bandung and are planning for other cities as well. We started it in about 2006 and it has been showing great results.

Traditionally we have been very strong in consumer banking and the top tier of the corporate market. But also, traditionally we have not really touched the middle market segment and there are a lot of opportunities in this area.

There are two reasons why we are going in at full speed on this. One is because there is this gap we think we can fill. Two is because we believe a lot of these SMEs and MMEs will become very big in future.

For example, telecommunication retailer PT Trikomsel Oke with whom we just signed a US$75 million loan. The company has been growing very rapidly. The size of it three years ago and now is very different. We have been advising this client for a very long time. With the growth rate, maybe in two to three years it will become a big company.

We also have some exposure to the garment and textile industry, plantations, coffee, rubber, CPO in Sumatra, and trading companies.

There are a lot of opportunities in the plantation sector. For example, people who have 20,000 hectare of palm plantation and performed moderately in the past are getting an extra boost from the rather significant commodity price increase.

What proportion of lending from Citibank goes to SMEs?

In corporate lending, large corporations have taken a bigger chunk. In the corporate world, a $30-40 million loan is not considered that big.

In the SME sector, there are a lot of companies that you lend $5 million, $3 million, or even $2 million. And since we just started, it's taking us time to make sure we build that nicely.

The growth in that sector is over 50 percent a year, and I think (it will be) this year too. In terms of the next two to three years, I believe the same trajectory is going to be there.

And it is not only on lending. Some people do not need to borrow money, but they need working capital, further hedging (of their risks), cash management to make it more efficient, advice on foreign exchange transactions and many other things. We really position ourselves as the trusted advisors for these companies.

How do you compete with local banks here that already have a strong foothold in the SME sector?

We do not want to compete on price, by saying we can do this 50 basis points cheaper for example. I think in that instance, we probably won't add value (for customers).

We are pretty honest to clients in saying, "Look, maybe in this instance, we won't add value. It's okay. You can bank with the other banks if they can provide more value in this product, this loan for example. Good for you." What we try to do is advise them, "If you take this loan, you have this set of exposure".

For example, if they borrow in dollars while their sales are in rupiah it is cheaper, but they have to be careful because this scenario really has an effect on the operation of the company. So we would say, "Why don't we try to have derivative transactions or hedging scenarios to minimize the exposure."

We don't want to be involved in all transactions but we want to be in transactions where we can add value. If there is no value added, it's better not to do it.

A couple of other foreign banks are also in the SME sector. What's your leverage compared to them?

One is our globality in one hundred-plus countries. If our client wants to do transactions in Peru or Zimbabwe or South Africa or Vietnam, it's most likely we have an established presence in that country. So things are a lot easier and efficient.

Two, the quality of our people is second-to-none. This business is a service business, so we depend on our people. We have to constantly regenerate Citibank, sending people overseas and making sure they come back to bigger jobs because our executives are often head-hunted. That hunting is going to continue.

Third, the services we deliver through these people are first-class quality. We take it very seriously the quality we deliver to our clients. We don't want 'hit-and-run' cases. We want to make sure once the client is advised on our products and services, it is a long term relationship. It's a lot harder to obtain a client than to maintain a client longer. So we believe this is a partnership.

Bucking on medium sized businesses has its own risks, how do you see non-performing loans (NPL) for your company this year?

It is a natural thing in a bank, because this is a business of taking risks. We have a portfolio approach whereby we are going to lose money a little bit, but if we think we will have zero losses, we are not in the (lending) business. Last year, we had a very small net NPL level (a net NPL of 1 percent and gross NPL of 7 percent) was made after making provisions and those provisions were accounted for in the $1.7 trillion net income -- which was 40 percent growth over 2007. It was a very good result.

Now, as interest rates rise and purchasing power diminishes a little bit, it is natural to have an increase in special managing assets and a more careful approach.

But as with our portfolio, you have got to be sure it is robust enough so even if it is eaten up a little at the bottom level, it will be fine. I do not see this as a big issue.

People become more prudent, but people still see a lot of opportunities in this (lending) segment. The pricing is going to be a little bit different because people are more prudent and using more rational pricing systems for the risks they have. A dollar you make from a very good company is very different from a dollar from a lousy company. The risk is very different. People are more aware of risk-adjusted assets and returns. So will there be a break in lending? I don't think so.

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