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Citi putting commercial focus on SMEs and MMEs

Following the strategic sale of their local retail buisness,  the bankʼs head of Europe, the Middle East and Africa talks about her companyʼs focus on the commercial business in Hungary.

Tasnim Ghiawadwala is a Citi managing director and the head of commercial bank EMEA (CCB). EMEA CCB manages a portfolio of 11,000 customers with deposits of $4 billion and assets of $3 billion, and has a direct presence in nine EMEA countries.

The news, confirmed on September 2, that Citi has agreed to the sale of its Hungarian retail banking and consumer investment business – along with its consumer loans, cards, and microenterprise businesses – to Erste Bank Hungary, underscores the U.S. global bank’s determination to divest itself of non-core operating businesses. In Hungary the focus will be on corporate and commercial banking, a fact emphasized by a two-day visit from Europe, Middle East and Africa head Tasnim Ghiawadwala. She spoke exclusively with the Budapest Business Journal about what the future holds here.

“Our overall regional and global strategy is to still look for growth in key segments where we feel we have a valid proposition that is relevant and applicable to the target markets, and I think the decision to focus our efforts in Hungary on the corporate and commercial businesses is further emphasizing our alignment with that strategy,” Ghiawadwala says.

The decision to sell off the retail banking business while keeping the corporate and commercial operation is part of the global strategy and it clearly points to where Citi sees the greater potential in Hungary. Indeed, Citi insists “the financial impact of the sale is not material” on its business here. But once the deal with Erste comes into force (likely in Q4 of 2016), this country will be far from unique in having a standalone commercial operation. Citi Czech Republic announced a similar deal, with Raiffeisen Bank the buyer, on September 14.

“Citi is in 100 plus countries; consumer banking, even before this recent sales announcement, was only in 35 – it was never in all 100. So, we do have a tried and tested model of just the institutional businesses operating in a country, and making the network work from both the customers’ and the company’s perspective. The consumer bank will be in 24 countries with the largest scale and highest growth potential, that creates the focus. It is always a challenge to explain to customers when we exit a segment in a country, but they also, I hope, understand that it is always better for companies to focus on things that they do well.”

Clearly, Citi thinks it does commercial banking well. But before we get further into that, a couple of definitions ought to be clarified. “Our definition of commercial is quite different to our competitors: What we call a small- and medium-sized enterprise (SME) is a company with annual turnover of between $5 and $50 million; MMEs (middle market enterprises) have $50 to $500 mln on sales turnover. What we call an MME some of our rivals would call corporate. We have a separate corporate department for companies with more than $500 mln, the global subsidies of the likes of Procter & Gamble.”

So what does the SME/MME market look like in Hungary? Ghiawadwala lists the usual key attractions: A relatively low-cost/high-skill workforce and a good geographical location. “That means there is going to be a continuing foreign investment coming to Hungary. We see it already: If I look at my customer base, we are seeing more and more SSC types. We were talking yesterday as a team about opportunities in the payroll, or e-commerce space, as well as there being some opportunities in software development. There is already a very big expertise in manufacturing in the auto space. I think that will continue to expand. We have many customers in the supply chain and all of their order books are still going up.”

That growth potential comes despite an uncertain global economic outlook, Ghiawadwala acknowledges. “Clearly Europe, and the world as a whole, has somewhat difficult pockets of circumstances. You have got China slowing down, the EU crisis of 2010-11 not fully resolved. So, given that there are still lots of headwinds out there from different quarters, we feel that the SME and MME spaces are still high value segments for us to focus on. If you look at the GDP on average of any economy, and Hungary is a case in point, about 60-70% of the economy is driven by SMEs and MMEs. Those two segments get a lot of support from governments – in Hungary around 50% of the GDP is contributed by SMEs and they employ 70% of the workforce. I cover nine countries in EMEA. I look across and compare Hungary’s performance to some of the others like Turkey, Czech Republic, Russia, Poland: Hungary is doing relatively well in terms of growing from an economic perspective. The political and economic environment is overall stable, I would say.”

Clearly, though, the future will be as important as the present. What does Ghiawadwala’s crystal ball tell her? “We do a survey every year that we call ‘The Voice of the Customer’. We surveyed around 4,500 customers across the region on a whole range of things, and the items that resonated with us in terms of feedback were the quite large proportion, around two-thirds, who told us that they expect to be looking at cross-border activity over the next three to five year time horizon. Within that two-thirds, half said they were looking at other European countries as a destination; the other third was looking worldwide, Asia was the next region they were targeting. These results really encourage us that we are on the right strategic focus to align ourselves with those aspirations.”

Why should a Hungarian company choose Citi as its banking partner? “I think the first thing is we provide a lot of credibility, particularly if a customer is wishing to go global. We have the strongest brand recognition across the world, I would say, amongst all banks. I think we provide a lot of credibility to a customer if they can say to their own suppliers and customers that Citi is their banking partner. Their own value chain will feel more comfortable. The second thing is we can provide amazing global products. Our uniqueness comes from the network we can provide and our globality. Our online banking platform can provide a global view across 100 countries. We are investing quite heavily in our online banking platform, both for cash management and for FX. The other area we are investing in is mobile, making our online banking available on smartphones. We are also looking at how we can leverage tablets, because we do not really see branches as the way in which people transact now; more and more of it is being done online.”

That mention of FX may be of particular interest in Hungary, which has seen notable foreign exchange volatility at times. “We look together with our clients at their import/export business, how they can manage their FX exposure through hedging. For volatile times on the FX markets, we offer clients both an online FX platform and we also have experts in our treasury department that customers can talk to.”