SINGAPORE - In this and other Southeast Asian countries, banking giant Citibank has discovered the beauty of being small.
Often restricted to one branch and excluded from local ATM networks, the New York-based bank has managed to build the most feared and respected consumer bank in the fast-growing region.
At the same time, Rana Talwar, the executive vice president who runs the consumer bank in Asia/Pacific, says the liberalization of local banking markets will bring new opportunities. But he makes it clear Citibank has learned to be patient - and creative - in serving a select client base stretching from Australia to Tokyo and from Turkey to Guam.
While most foreign banks focus on capital markets opportunities exclusively, Citibank is unique with its on-the-ground consumer strategy in every country. Unlike its mass market approach in the U.S., the plan in Asia is to cherry pick top customers and smother them with accessible technology and products that local banks are slow to provide.
It appears to be paying rich rewards. Although Citibank refuses to break out figures, analysts and competitors speculate that the region generates nearly a 4% return on assets - four times the level of the company as a whole.
When asked about Citibank's financial performance in the region, Mr. Talwar hides his modesty behind a broad grin for a moment, offering one insight: "It is very good, trust me on this."
Q.: Why is Citibank the boogieman for banks in Southeast Asia?
Mr. TALWAR: The reason for that is that we have, in many ways - and I don't want to sound unduly egotistical about it - written the book on banking in many ways.
Q.: What is that?
Mr. TALWAR: It's the emphasis on the marketplace. It's local people; local knowledge; product innovation; it's bringing consumer marketing skills to banking, which had never been done in Asia. What we are about at Citibank is to be a world-class brand. We should be like McDonald's where people know what to expect in our branches. It shouldn't be a surprise.
Q.: It seems more Tavern on the Green than McDonald's.
Mr. TALWAR: That's right.
Q.: As more of these markets open up, and restrictions on off-shore banks are lifted, how do you expect to benefit?
Mr. TALWAR: I wouldn't want 240 branches in Thailand, but I definitely want more than one. Over time we will be able to have more. If you look at the trend around the world, over time the opportunities are there. Fifteen years ago, we weren't allowed to do anything, anywhere. Now we can open as many branches as we want in Australia and we are up to 26. Korea restricted us to one branch and now we can open five a year. I don't want to be a mass market bank here, but I do want to do more.
Q.: How have you been profitable in country's where, for instance, they won't let you participate in the ATM network. That has to be expensive?
Mr. TALWAR: It has been the consistency of our values. We have not been all things to all people. It has been almost a mania of customer service, that our customers must feel and perceive that they see us being in a class by ourselves. We have to leverage our globality. Yes, Bangkok Bank has 30% marketshare in Thailand and there is no way to compete with their 240 branches. But for our upscale, sophisticated customer base there can be only one bank.
Q.: How have you responded to those challenges?
Mr. TALWAR: The legal restrictions on ATMs and our ability to open branches has forced us to be innovative. This has also prevented us from building the bricks and mortar that we might otherwise have invested in. You have to turn a competitive disadvantage into an advantage. Which is, for example, like saying "If you are a Citibank customer, you can sit in your office or home and call up at 11 o'clock at night at get your business done." We can do that with 100,000 customers. It's tough to do that with two million customers.
Q.: What is your view of opportunities in two largely undeveloped countries: Vietnam and China?
Mr. TALWAR: I think three to five years down the road it will be attractive on the consumer side. I don't see it before that largely because we can't do local currency business, which means you can't do business with local people. The bad news is that it is not there for three to five years. The good news is that they are going to be awesome markets. Vietnam will be similar to a Thailand where we have over $100 million in revenues. China has more than one billion people. If you take 1%, that is 10 million people. That is four times the number of people in Singapore.
Q.: Local restrictions have not been the only factor affecting your growth. How did the tough years in the U.S. affect the availability of resources here?
Mr. TALWAR: We were all part of what was going on. Was there a resource issue? Yes there was within the entire company. But I got the lion's share. Look, at a time when Citicorp reduced the headcount by 20,000 people, I was growing a thousand a year. We were allowed to grow expenses, which have increased at 15% a year, but our revenues have increased 30% a year. I could go to John (Reed, Citicorp's chairman) and say that the expenses were going to be over plan, but the good news was that profits were going to be also.
Q.: Your customers are much better risks here than in the U.S. Your delinquencies are one-fifth what they are domestically in the credit card business. Why is that?
Mr. TALWAR: Our profit model allowed for higher losses, but what happened is we have far outperformed our own credit model in the card business and have had incredible returns, largely because of no major credit losses. Is that good news? Yes, it is great news. Is that sustainable over time? Probably not. But that is no bad news, because we want to grow the portfolio and still make a lot more incrementally.
Q.: It wasn't always that way?
Mr. TALWAR: We started five or six years ago. We were Johnny-come- lately. Hong Kong Bank, Standard Chartered and, more than anymore, American Express, owned that upscale, international, service-oriented image. We came in and we have taken away the market. We are today the largest card issuer in Asia. We have in many cases created the market. Take, for example, Indonesia. When we started they had a grand total of 40,000 cards in a country of 185 million people. Today, Citibank has a half-million cards there.
Q.: How do you grow marketshare when the Americanized practice of slashing fees and interest rates is a foreign concept to the Asian card business?
Mr. TALWAR: We have the most expensive card in almost every market. There was no such thing as marketing credit cards here. It is not a matter of being innovative in the world, but in taking things that are innovative in parts of the world and trying them here. We introduced advertising and introduced direct mail. We imported best practices, but it was done with local people committed to local markets.
Q.: Even so, credit cards are only about one-third of your revenues in Asia. Where do the rest come from?
Mr. TALWAR: It's the core banking. It is deposits, but again not plain- vanilla deposits. We, in most countries, do multi-currency deposits where you can hold your money in the yen and German marks. The profitability is because of the spreads and because as people convert from one currency to another you make a lot of money off the foreign exchange. That is a big part of what we do. It is also a big part of the funding.
Q.: What could your counterparts in the U.S. learn from the Asian operations?
Mr. TALWAR: I think segmentation. I think branding. I think pricing for value rather than commodity pricing. By creating the brand, you set the pace for all that.
Q.: So what is the greatest risk you face in these markets?
Mr. TALWAR: Long-term, it is liquidity or local currency funding. Can we continue the growth in our liquidity? I mean, I have no doubt that car loans and mortgages and credit cards will grow. We have to see that technology and infrastructure keep pace with the growth. Really, it is distinguishing ourselves through superior service because that is the basis on which our growth has occurred. We live and die by that.