Case 16: Citibank Indonesia

Castillo, Kristine H. (9)

Point of View. Third party analyst.
Problem. Given the current outlook in Indonesia, how would Mr. Mistri manage Citibank
Indonesia to meet the corporate goal set by the home country?
Analysis. Mr. Mistri is faced with a dilemma on the more aggressive strategy of the home country
against his already aggressive budget while Indonesias short term outlook is pessimistic. His
alternatives include eliminating its participation in loans to government and private sectors as
this provide low returns and may pose damage in its relationship with the host country. Another
option is to increase the total money lent to Indonesia, however this will expose the bank to
higher risk. To add to this, he also have internal problems with the increasing employee turnover
rate, and the potential impact of the increase in budget with his performance evaluation and
incentive compensation. Although the corporate is controlling international branches based on
sovereign risk limits and budgeting, Mr. Mistri is operating below the sovereign risk limit and it
can be inferred that the budget he submitted is moderately aggressive. This may be due to his
personal interest of exceeding his budget for the incentive compensation. For financial services
firm, their main business is accepting higher risk for a greater reward. Mr. Mistri may not be
taking in too much risk as he is considering the companys exposure in times of pessimistic
outlook, as well as its impact on his evaluation and compensation. The corporate, on the other
hand, should consider the economic outlook of the country as the currency they are operating in
evaluating its managers.
Recommendation. Mr. Mistri should accept the increase in the budget and should take on both
alternative of decreasing, and nit completely eliminating the loan to government and private
institutions and to increase commercial loans. He should maximize the risk based on the
sovereign limit assigned to Indonesia. The real GDP growth is still at a positive level although the
short term outlook is negative. But, if they take on higher risk in relation to Indonesian economy,
they may achieve growth in profit if the country indeed performed well. The corporate should
also evaluate its incentive compensation plan that would encourage managers to maximize its
profitability by taking in risk as they are in a financial service sector. The compensation should at
least target a growth similar to the GDP growth of the host country, and reward managers for
performing in excess of this goal.