Thus, being founded in the year 1912 as one of Commercial Credit, CitiFinancial came to existence because of Sandy Weill during 1986. CitiFinancial is consumer lending subsidiary of financial services giant Citigroup Inc. Thus, CitiFinancial offers bill consolidation, debt refinancing, home equity, home improvement and other personal loans through approximately 3,000 offices in the US, Canada, Mexico and Japan as the CitiFinancial group reaches customers through retail partnerships (, 2007). The banking industry faces a lot of incurring issues and challenges when it comes to certain business branch expansions as it can be due to diverse banking processes within bank sector industry as for CitiFinancial, it is imperative to involve the aspects of branch assimilation, assumptions as well as implications of the such desire to adopt to the process of total branch expansion to various regions globally. Thus, the research investigation will identify descriptively the branch expansion factors as well as positive outcomes of the expansion in determining strong and weak points of the expansion process in the banking sector industry and determine the value levels of branch networking paradigms and context of CitiFinancial respectively. (, 2007)
RESEARCH QUESTIONS
The following research questions will be explored in the study: The research questions will be explored qualitatively by conducting interviews with the engineering management of Citigroup Inc. in Hong Kong.
Thus, the questions provided below are to be answered also for more depth of research meaning and relevance.
1. What are the value of branches and core competence? And how it is realized in CitiFinancial for potential success of their strategic plans branch expansion?
2. How imperative is CitiFinancial’s roles and responsibilities models in realizing better strategies for expanding branches? Explain the value and importance of CitiFinancial’s goal statements of the matter.
3. Determine and discuss briefly CitiFinancial’s focus for branching strategy, is it moving towards better and positive branch expansion network? How and in what way?
4. What are the possible strategy expansion issues and challenges that CitiFinancial might face upon the realization of such branch expansion plans?
5. Is CitiFinancial well prepared to put forth complete strategic effort in expanding its branches? Any evidence or support for the latter?
STRATEGIC IMPORTANCE OF THE RESEARCH
The research will have a strategic importance in identifying barriers and problems that CitiFinancial may face during its expansion. Further, the research will make the expansion easier for the company. A strategic aspect of expansion projects is difficult because there can be issues to consider like there is budget, span of time, supplier and resources as the bank is planning to expand with an additional 25 branches for CitiFinancial in Hong Kong – an exercise that requires much preparation and background research. This study will assess the process by identifying the key variables that would affect the successful completion of the expansion. By estimating the budget necessary, the timeframe necessary and staffing required, this study will be able to predict the success of the expansion in Hong Kong. Furthermore, identifying the advantages that an integrated supply chain approach can contribute to the project would help in its development.
Research Goals
This study will try to achieve the following research goals:
- To be able to acquire useful research evidences and information and the finding out of certain possibilities for CitiFinancial to increase more of their branches internationally and expand their networks within the banking sector industry not just in the US but other countries as well
- To interview and survey head and staff of Citigroup for possible information regarding issues of such strategic branch expansion
- To study, realize and apply the data collected from literatures and respondents and the searching over for relationships that are vital for understanding and recognizing the study’s focus and purpose
Research Plan and Methodology
The first month will be dedicated on the knowing more about the problem of the research. This will be followed an in-depth literature search on the internet and local libraries. Literature search will continue for as long as four months. The three among those four months will also be dedicated in knowing more about the research design and methods chosen for the study. The following months will be dedicated in data collection. A letter of permission to conduct research will be submitted to the management of CitiFinancial as appropriate. Several branches of CitiFinancial globally will then be chosen for interviews and surveys. Data analysis will soon follow. The data will be analyzed both qualitatively and or quantitatively. Quantitative testing is for the data collected from CitiFinancial, basically to find out the statistical prevalence of branching and expansion issues and prevalence of such applied measures. Multi-method is the chosen means of conducting this research so that data collection can be flexible and the topic will be better explained and elaborated.
Overview of the Dissertation
The dissertation will be composed of five chapters.
The first chapter will introduce the problems of the study, aims and objectives, as well as the methodology used.
Then, the second chapter will deal with providing the details of precise review of literature pointing and reflecting towards branch expansion processes and other relevant data and information for the completion of the study. Here, financial banking industry will be explored as well as the different issues and challenges that CitiFinancial face and apply.
The third chapter will present the data collected from the interviews and surveys amicably. Each data will be followed by discussions guided by references from related literatures.
Thus, the fourth chapter will present and discuss the data collected from the selected sectors within the CitiFinancial team. This will include the presentation of qualitative and quantitative data acquired and discussions on each of them.
Lastly, Chapter 5 will present the conclusion of the study as well as its recommendations.
Expected Results
The research study anticipates discovering such realization and actualization of branch network expansion of CitiFinancial that will involve its corporate and management ways as to how they can be successful in a lot of ways as there involves management team participation and the determining of branch expansion techniques and methods that the bank can use in their branching expansion. The study also integrates to know and realize imperative and critical points to be reflected in the research analysis and discussion of research findings and be able to meet the guidelines and procedures recommended by the people involved in the branch expansion study of CitiFinancial.
chapter two
Review of Related literature
CitiFinancial, in a way experiences such banking risks involving loans and credit processes as there can involved to lending matters as primary banking activity and that, CitiFinancial’s loan portfolio is an asset of such predominate basis for certain revenue purposes and can be one valid source of risk in its safety as well as soundness. Thus, it can be because of lax of the credit standards and poor portfolio risk management. Thus, effectiveness in the management of loan portfolio and the credit function can be one of the factor implying CitiFinancial’s strategic issues reflecting such branch expansion patterns as there can be inherent to such process of credit that are being managed at the same time being controlled. The management context helps evaluate the steps bank management takes to identify and control risk throughout the credit process.
Thus, several banks have found that these indicators do not provide sufficient lead time for corrective action when there is a systemic increase in risk. Aside, in managing the portfolios, bankers must understand not only the risk posed by each credit but also how the risks of individual loans and portfolios are interrelated. CitiFinancial’s management of credit risk are to be must continue after a loan has been made, for sound initial credit decisions can be undermined by improper loan structuring or inadequate monitoring and must review credit risk management in terms of portfolio segments and the entire portfolio. Then, CitiFinancial must be sure that the policies, processes, and practices implemented to control the risks of individual loans and portfolio segments are sound and that lending personnel adhere to them as there engaged in international lending face country risks that domestic lenders do not. Country risk encompasses all of the uncertainties arising from a nation’s economic, social and political conditions that may affect the payment of foreigners’ debt and equity investments.
As banks frequently shift interest rate risk to their borrowers by structuring loans with variable interest rates. Borrowers with marginal repayment capacity may experience financial difficulty if the interest rates on these loans increase. As part of the risk management process, banks should identify borrowers whose loans have heightened sensitivity to interest rate changes. (Cited from, , , ) Consumer loans such as mortgages, installment loans and credit cards are routinely originated for immediate securitization and there can be expanding in terms of packaging and sale of distressed credits and otherwise undesirable loans. The management information systems should distinguish between commitments that the bank is legally obligated to fund and those that it is not. Any analysis of the bank’s ability to reduce or cut existing commitments must consider more than its legal obligation to lend. It should also consider reputation risk and the potential for lender-liability actions. The withdrawal or reduction of commitments can have significant ramifications for a bank. (Cited from, )
From a strategic perspective, any tightening of commitments may adversely affect a bank’s ability to maintain or grow a customer base if it is perceived as an unreliable lender in tight credit markets. A bank’s reputation may also suffer if it is perceived as unwilling to support community credit needs. However, as CitiFinancial develop more active portfolio management practices and the market for loans expands and deepens, loan portfolios will become increasingly sensitive to price risk. (Cited from, , , ) For example, banks have incurred increased credit risk when information systems failed to provide adequate information to identify concentrations, expired facilities, or stale financial statements. At times, banks have incurred losses because they failed to perfect or renew collateral liens; to obtain proper signatures on loan documents or to disburse loan proceeds as required by the loan documents. (Cited from, , , ) CitiFinancial’s supervisory activities should include the review of the bank’s internal compliance process to ensure that examiners identify and investigate compliance issues. (Cited from, , , )
Strategic Risk – Major Issue
A primary objective of loan portfolio management is to control the strategic risk associated with a bank’s lending activities. Inappropriate strategic or tactical decisions about underwriting standards, loan portfolio growth, new loan products, or geographic and demographic markets can compromise a bank’s future. For example, many banks are extending their consumer loan activities to prime borrowers. (Cited from, , , ) Moreover, how will they compete with the non-bank companies who dominate this market? Both bankers and examiners need to decide whether the opportunities outweigh the strategic risks. If a bank is considering growing a loan product or business in a market saturated with that product or business, it should make sure that it is not overlooking other lending opportunities with more promise. During their evaluation of the loan portfolio management process, examiners should ensure that bankers are realistically assessing strategic risk. (Cited from, , , )
When CitiFinancial experiences credit problems, its reputation with investors, community and the individual customers usually suffers. Inefficient loan delivery systems, failure to adequately meet the credit needs of the community and lender-liability lawsuits are also examples of how CitiFinancial reputation can be tarnished because of problems within its lending division. Reputation risk can damage a bank’s business in many ways. The value of the bank’s stock falls, customers and community support is lost and business opportunities evaporate. To protect their reputations, banks often feel that they must do more than is legally required. (Cited from, , , )
Credit Culture and Risk Profile
Moreover, understanding the credit culture and the risk profile of the bank is central to successful loan portfolio management. Because of the significance of a bank’s lending activities, the influence of the credit culture frequently extends to other bank activities. Staff members throughout the bank should understand the bank’s credit culture and risk profile. (Cited from, , , ) The knowledge should pass from the chief credit policy officer to account officers to administrative support. Directors and senior management should not only publicly endorse the credit standards that are a credit culture’s backbone but should also employ them when formulating strategic plans and overseeing portfolio management. (Cited from, , , )
Accordingly, credit culture is the sum of its credit values, beliefs, and behaviors. It is what is done and how it is accomplished. The credit culture exerts a strong influence on a bank’s lending and credit risk management. Values and behaviors that are rewarded become the standards and will take precedence over written policies and procedures. (Cited from, , , ) For example, Bank A’s classified loans might be fully secured and made to borrowers within its local market, while bank B’s loans are out-of-market, unsecured loan participations. Consider, as well, how much more the failure of a million loan would hurt a 0 million bank than a billion bank. (Cited from, , , )
The risk profile will change over time as portfolio composition and internal and external conditions change. However, the emphasis will influence how lending activities are conducted and may prompt changes in credit policies and risk control systems. (Cited from, , , ) For example, CitiFinancial maybe driven to achieve aggressive growth targets may require more detailed credit policies and more controlling administrative and monitoring systems to manage credit risk properly. If the credit practices and risk-taking activities of a bank are inconsistent with the desired culture and policies, management should find out why and initiate change to bring them back in balance. (Cited from, , , )
Strategic Planning
For CitiFinancial, meeting the objectives will require that senior management and the board of directors develop medium- and long-term strategic plans and objectives for the loan portfolio. These strategies should be consistent with the strategic direction and risk tolerance of the institution. They should be developed with a clear understanding of their risk/reward consequences. They also should be reviewed periodically and modified as appropriate. In drawing up strategic objectives, management and the board should consider establishing: (Cited from, , , )
- What proportion of the balance sheet the loan portfolio should comprise
- Goals for loan quality
- Goals for portfolio diversification
- How much the portfolio should contribute to the bank’s financial objectives
- Loan product mix.
CitiFinancial group should evaluate business, marketing and compensation plans to ensure that short-term goals and incentives are consistent with strategic portfolio objectives and risk tolerances. In community banks without formal strategic plans, senior management should be able to articulate the bank’s strategic objectives. It should be evident, as well, that the board of directors has endorsed those objectives. (Cited from, , , ) In addition to establishing strategic objectives for the loan portfolio, senior management and the board are responsible for setting risk limits on the bank’s lending activities. Risk limits should take into consideration the bank’s historical loss experience, its ability to absorb future losses, and the bank’s desired level of return. Limits may be set in various ways, individually and in combination. CitiFinancial should have a system in place to ensure that exposures approaching risk limits are brought to the attention of senior management and the board and that exceeding or modifying established risk limits should require their explicit approval. In addition, any proposed changes to the bank’s underwriting standards should be evaluated to determine how the change will affect overall portfolio risk. (Cited from, , , )
Policy and Strategic Planning
- Determine whether management has clearly communicated loan portfolio strategic objectives and risk limits to the board of directors and whether the board has approved these goals
- Determine whether planning activities consider credit culture and loan policy issues and are linked to business plans and budgets.
- Verify that the board of directors and senior management routinely compare performance with planned performance in coordination with the overall evaluation of the strategic plan, evaluate the lending function’s planning process for thoroughness and reasonableness
For such expansion strategy to be effective, management should establish and clearly communicate CitiFinancial’s strategic objectives as there should consider identifying objectives for every key segment. A business plan to achieve these objectives should be a part and consistent with, the bank’s overall planning process. (Cited from, , , ) Management should use those objectives to establish risk tolerance limits. As those limits are approached, the risk management process should require that the board of directors and/or senior management review the portfolio to assess the reasons for the increased level of risk and to take appropriate action. Management should periodically evaluate each lending unit’s business and marketing plan for consistency with strategic portfolio objectives. (Cited from, , , )
Source of the above:
Furthermore, effective credit risk management is a critical component of CitiFinancial’s risk management strategy and is essential to the long-term success of any banking organization. Overall, the components of effective credit risk management comprise active board and senior management oversight; sufficient policies, procedures and limits; adequate risk measurement, monitoring and management information systems and comprehensive internal controls. The use of credit derivatives in one Tier One bank has significantly reduced its financial markets’ credit risk from 70-75 percent to 40-45 percent. Credit derivatives create new possibilities for risk transformation through innovative structures such as credit default swaps, basket swaps and debt obligations. Today, the focus of CitiFinancial will possibly to adopt an enterprise credit risk management approach to achieve an integrated view of risk. Best practice in credit risk management should demonstrate centralization, standardization, timeliness, active portfolio management and efficient tools for managing exposures. By constantly enhancing existing tools and methods, banks are able to work toward achieving best practice. Furthermore, consistent, accurate and reliable data is required to achieve best practice in credit risk management.
According to (1995): ‘’each step back in the supply chain, volatility of demand increases and forecast accuracy decreases’’. The reason in because it relies on discrete inventory buffers to smooth the flow of goods through production and provide a reliable response to volatile consumer demand (, 1995). Traditional approaches also react very slowly with the demand trends and also treat all items very much the same. This is not the case in the integrated approach (, 1995). An integrated supply chain is linked organizationally and coordinated with information flows, from raw materials to on-time delivery of finished products to customers (, 1995). Partnering-oriented business relationships are established between, and among, all supply chain members to facilitate coordination of supply chain activities (, 1995). (1995) explained that integrated, coordinated supply chain “super organizations” are extremely responsive and can react quickly to support a partner company’s rapid growth. According to (2006), the advantages of supply chain management include: quicker customer response and fulfillment rates; greater productivity and lower costs; reduced inventory throughout the chain; improved forecasting precision; fewer suppliers and shorter planning cycles; improved quality and products that are more technologically advanced; enhanced inter-operational communications and cooperation; shortened repair times and enhanced equipment readiness and more reliable financial information (, 2007).
Moreover, in research, Hong Kong’s banking industry has been an increasingly competitive business environment. With concerns over rising bad debts and shrinking interest margins, many commercial banks have introduced new product initiatives, ranging from credit cards, investment management and insurance to e-banking. These have all been major sources of revenue for banks in adjusting to the new economic setting. For the organization that moves into new product areas, there is also likely to be greater uncertainty surrounding customer preferences (, 1988) and a corresponding need for customer accounting information. For example, (2000, ) found that medical equipment manufacturers who moved into new markets had a greater need for customer information and noted that, ‘’management control systems in new product development are viewed as sources of information that are used to close the gap between the information required to perform a task and the amount of information already possessed’’ (Cited from, and , 1999)
The management accounting practices that were adopted included new cost allocation methodology, value for money exercises, new cost reports, competitive benchmarking and more participative budgeting processes, all of which increased the levels of discussion and produced greater communication between managers and management accountants. ( and , 1999) When a bank begins to serve new customers, their needs and requirements are less well understood and uncertainty is high. In this case, information about customers obtained from a customer accounting system is expected to be beneficial in tailoring products to customer needs as well as helping the bank to allocate resources to support the promotion and sale of such products. (, 2007) The strategic expansion plans of CitiFinancial must also take into account a bank’s need to upgrade its technology infrastructure or provide additional space for marketing activities. There is no single formula for an effective expansion and remodeling program. But all successful projects should have the common goal of better meeting customer needs and maximizing the bank’s opportunities for future growth. Thus, few banking executives would consider launching a major new product or service initiative without first conducting an in-depth marketing analysis to determine customer needs.
Strategic planning is just as important when it comes to building or relocating bank facilities. ( and , 1997) There needs to have a comprehensive facilities planning study should be the foundation for any building initiative to help bank management make the right decision about where facilities should be located to best serve the customer base and how much space will be needed to meet current and future needs and that a sound strategic expansion plan for CitiFinancial should include the following steps: ( and , 2001 )
- Analyze the local market from an economic and demographic standpoint in order to assess growth opportunities
- Review the bank’s financial history as well as any other significant trends that can be used as a base for projecting future activity.
- Recommend a long-term facility strategy that prioritizes branch and main office alternatives from a geographic, staffing, competitive and affordability standpoint.
The Issues for Strategic Location Selection
Location selection is one of the most critical factors in the decision-making process, and one that should be determined through a comprehensive and logical approach. Key criteria include: (, , and , 2000)
- Serving customers – How will the needs of current customers’ best be served from a facility standpoint, taking into account current customer residences and their community and shopping patterns?
- Positioning for future operations – What will be an effective location 5, 10 or even 15 years from now, considering economic and demographic trends?
- Preserving and, if possible, enhancing the value of the real estate investment – What location represents the best investment for the bank’s dollar?
Regardless of specific circumstances, a strategic planning study can be an invaluable tool to help bank management ensure that their facilities will successfully meet customer needs and maximize the organization’s opportunities for future growth. (, , and , 2000)
The Need for Strategic, Innovative Direction
With the dynamics of the future so unclear, it only makes it more apparent that CitiFinancial will need:
- Greater focus on what differentiates them from the competition
- Heightened responsiveness to ongoing changes in the marketplace and increasingly complex demands from regulators and stakeholders
- Variable cost structures that allow banks to accommodate fluctuations in market demand and product preferences while improving financial position through lower cost structures
- Improved resilience to counteract increased internal and external uncertainty and marketplace volatility
Figure One: Paths of Progression
Source of the above:
Available at:
Thus, CitiFinancial is re-cobbling together an integrated view of the customer but certain channels are still predominately product-centric and management control remains within business units. With interdependent processes across competencies and business units, banks are struggling with overwhelming operational complexity. Connections between different areas of the enterprise tend to be static, inflexible and sometimes manual. Then, without adequate integration, the cost associated with the resulting organizational complexity can sometimes rise to the point where it offsets any benefits gained from shared processes. Moving into the future, banks will get relief. (, and , 1997) Technology advances will ease the friction of enterprise reconfiguration, and financial institutions will become more comfortable operating across product lines. As collaborative capabilities expand, companies will be able to push the concept of shared processes past their initial competency-based structures to a much more granular business composition. To a large extent, technology advances are the key enablers that are making it possible for firms to operate in demand fashion. ( and , 1997)
As better Information Technology is more open, integrated, virtualized and autonomic, it provides new ways of collaborating, eases business integration and reconfiguration and helps firms better manage the rising complexity of managing IT in order to achieve the state of flexibility, CitiFinancial’s IT infrastructure needs to be: (, and , 1997 )
- Based on open standards just to simplify systems integration and adapt to technology changes rapidly
- Integrated in order to facilitate transaction and process integration across the enterprise; allow real-time connectivity among partners, suppliers and customers; enable active data mining and decision support
- Virtualized because of distributed computing resources are shared and managed to increase the utilization of existing assets and lower IT costs
- Autonomic within systems that have embedded privacy protection and security features
CITIFINANCIAL’S GOAL STATEMENT
Amicably, the value and importance of CitiFinancial goal statements is for strengthening up certain focus for their strategy in dealing to branch expansion as the goals will help in making CitiFinancial’s strategic focus a success as there can be found in multi product development through possible retail store as it implies people development and banking morale. The goals of the institution is imperative in providing and achieving good and effective communication of the strategic expansion process in realizing appropriate customer focus and work professionalism respectively. The goal statement of CitiFinancial is being integrated in their four distinct statements for expansion of branch network in 2007 as detailed below:
Financials
• Achieve top up conversion by vintage: 50%
• Achieve account target for:
• Branch New: 8,400 probably for 2008-2010
• Portfolio Actions: 10,700
People
• (VOE Score: 80)
• (Employee attrition rate: <25%)
Customer Franchise
• Open 3 new branches by end of 2007)
• Expand product set for branch network:
• Mortgage (USMM new vol.)
• Insurance (USM revenue)
• Cards, Revolving Loan
Customer and Control
• CSLM Score: 78
• Satisfactory Result on CCR and External Audit (e.g. HKMA, etc.)
CHAPTER THREE
RESEARCH Methodology
the approach
The study generally aims to identify strategic issues in the expansion of CitiFinancial. The following are the specific aims of the study:
To be able to:
1. Identify the strategic expansion needs of CitiFinancial in their expansion of 25 more branches in Hong Kong.
1. Determine issues relating to expansion costs and actual process duration
2. Find out strategic issues and patterns of human resource in lieu to expansion matters of CitiFinancial in Hong Kong
3. Identify main strategic branching issues that planning and project team should implement and execute
4. Realizing imperative facets for a strong branch expansion overpowering strategic issues in such chain approaches that helps make the expansion faster and less costly
5. To recommend effective strategies for expanding in Hong Kong, the study have to explore the problems presented by means of qualitative research
Research Process
The research process of the study can be best illustrated with the use of the ‘Research Process Onion’. The Onion refers that in order to come to the central issue of how to collect the data needed to answer ones research questions, there are important layers of the onion that need to be peeled away: the first layer raises the question of the research philosophy to adopt, the second considers the subject of research approach that flows from the research philosophy, the third examines the research strategy most applicable, the fourth layer refers to the time horizon a researcher applies to his research, and the fifth layer is the data collection methods to be used. (, 2003). Figure 1 shows how the researcher conceptualized the research approach to be applied in this study in order to come up with the pertinent data needed to answer the research questions stated in the first chapter, as well as to arrive to the fulfillment of this research undertaking’s objectives.
Figure Two: Research Process Onion
Case study is defined as a strategy for doing research that involves an empirical investigation of a particular contemporary phenomenon within its real life context with the utilization of various sources of evidence, and in this strategy, one has the considerable ability to generate answers where data collection methods applicable with such approach include questionnaires, interviews, observation and documentary analysis (, 2002; , 2003). The fourth layer of the onion presents the time horizons of the study, which is cross-sectional. Cross-sectional fits well for the study as it only investigate a particular phenomenon at a particular time. Furthermore, case studies are usually based on interviews conducted over a short period of time (, 2003). Finally, the last layer of the research process onion is the data collection of the study. This will be explained completely on the proceeding sections. Data collection procedure will include sampling, interviews, observations and secondary data. The qualitative data analysis strategy to be used in the paper is the analytic induction approach as it fits well with needed research philosophy. Analytic induction encourages the collection of data that are thorough and rich, basically based on explored actions and meaning of those who participate in the process (, 2003). The analytical induction process for the study is the phenomenon from literatures and the participant views and the interpretation of data and conclusion.
Data Collection
Interviews will be conducted to the management of CitiFinancial, specifically the department that handles the expansion project. Questions will be asked regarding plans of purchase such as supplies, equipments, how many people to be hired, the planning cycles for the expansion and the forecasting plan and how precise it is. The interviews will be conducted personally. A tape recorder will be used during the interviews so that the recorded responses will be transcribed later for analysis and documentation.
Questions for the interviewee:
(1) What are the major challenges for CitiFinancial’s branch expansion?
(2) What happened in the old state?
(3) How to determine the branch expansion network and its process?
(4) How to implement the branch expansion measures?
(5) What’s happened in the new state?
(6) Any improvement after branch expansion realization?
(7) How to monitor or control the process?
(8) Any feedback from the staffs after the expansion?
(9) What’s the main duty that affected the process?
Selection of Sample Group
The research study had surveyed staff of CitiFinancial – Citigroup in Hong Kong, regardless of whether they were incorporated. Generally, the selection criteria for contacting of the banking sector were that they had to have a minimum of 100 employees, at least three branches, and at least one senior accounting manager who had some responsibility for customer accounting practices. This ensured that opportunities existed for possible chances of branch expansion practices in the organizational system. The contact persons as most of whom were financial controllers or chief financial officers were being identified and questionnaires were sent with cover letters that explained what the study was about and what the respondents were required to do. The researcher had received 85 completed questionnaires. The high response rate was due to systematic follow-up via phone calls within two weeks and one month after the mailing of the questionnaire. Regarding the highest level of CitiFinancial offices in Hong Kong, 13 were branch offices, 4 were regional offices and 18 were head offices of the remaining 26 (74 percent) banks, 6 (17 percent) were listed on overseas stock exchanges such as in US and Canada.
Questionnaire design
The emphasis of the study was on CitiFinancial’s strategic branch expansion process as interviews with managers from the Citigroup had provided the initial basis for the design of the survey instrument. Further guidance was gained from the branch expansion management related literature ( and , 1996; , 1996). The questionnaire consisted of three sections. In the first section, the questions were designed to obtain information on the background of the corporation, such as the location of its headquarters, the level of CitiFinancial office in Hong Kong, whether the bank was listed, the number of employees, the level of income growth, income distribution, its business focus and product/service innovation. In section two, there were five questions were designed to capture the effects of deregulation, competition and restructuring. In section three, eight questions were designed to capture details of branch expansion practices.
Thus, for developing better strategies, it is useful for CitiFinancial to incorporate such management accounting activities to be adopted for strategic expansion of CitiFinancial as follows:
- allocation of costs to different customer segments
- allocation of costs to processing, product and service centers
- customer profitability analysis (data and trend) ( and , 2002)
- Product or service profitability analysis (data and trend)
- customer analysis associated with new product or service launches (, 2000)
METHODOLOGY FOR ASSESSING STRATEGIC COMPETENCE OF BRANCH NETWORKING
The assessment of the performance of a large-scale network of bank branches brings up problems not encountered in small-scale applications. These problems concern the lack of homogeneity among individual branches due to their diverse operating profiles, the development of causal input-output models for assessing market and cost efficiency and the comparative viability of groups of branches with different operating profiles. A methodological framework is proposed for assessing performance in large-scale bank branch networks. The discussion of the methodology is facilitated by the results obtained from an application on a set of 580 bank branches as there has taken many initiatives to monitor the efficiency of its network and thus its management was keen to evaluate and ultimately adopt the proposed methodology.
The assessment of efficiency was pursued in three interrelated phrases: In the first phase the bank branches are split into homogenous clusters in order to increase the validity of the comparisons between efficient and inefficient branches. Factors reflecting the differences between the environment and the operations of bank branches are used as criteria that form the clusters. In the second phase input and output models are specified to capture efficiency from the intrinsic (cost) and extrinsic (market) perspectives. The linear programming models are specified in the third phase seeking to assess branch efficiency according to the behavioral assumption made in the previous phase.
Sample Selection Homogeneity
Despite the similarities in the operations of bank branches, it is a customary practice to distinguish branches based on their location and other idiosyncratic features. Factor analysis was used for the identification of differentiating factors and cluster analysis for the definition of homogeneous clusters of bank branches. The method of principal component analysis was used to identify factors that would be used in the cluster analysis step. Four factors were selected which have accounted for 88 percent of the cumulative proportion of the variance explained. The geographical concentration of bank branches in similar areas creates small financial markets which attract customers.
Financial products and services provided by the branches of all banks are based on competitiveness. On the other hand, for differentiated products individual branches can benefit from other branches’ customers. The inclusion of competing bank branches in the market efficiency model is made avoiding a priori assumptions on whether it would have a positive or negative impact on the outputs produced by each branch. The expression ‘attribute’ is introduced here in order to express the differential between discretionary and nondiscretionary inputs and outputs and attributes that do not have a predetermined positive or negative impact on the output produced by individual branches. Cost efficiency is the second component of bank branch viability. On the input side the cost efficiency model uses the direct labor costs adjusted for regional wage variations and the total technology facilities at the disposal of individual branches. The technology factor of each branch is represented as an input element not deemed to be reduced since it includes not easily transferable investments and also the overall trend in the banking industry is to change the technology component of the operating process. Central management should be accountable for the selection of branch location, size, product mix and management. These issues constitute the scale size characteristics of a branch and thus the corresponding efficiency includes scale size effects. Local management is not responsible for the scale size characteristics of their branches and thus a measure of site-specific market efficiency free of scale size effects must be obtained.
The association between market and cost efficiency scores were finally examined using rank correlation coefficients. At the aggregate level the rank correlations within each cluster gave positive association between the market and cost efficiencies (cluster I = 0.40, cluster 2 = 0.23, cluster 3 = 0.35, cluster 4 = 0.62, cluster 5 = 0.60, cluster 6 = 0.28). The rank correlations for the site-specific efficiencies within each cluster were as follows (cluster 1 = 0.40, cluster 2 = 0.40, cluster 3 = 0.39, cluster 4 = 0.58, cluster 5 = 0.67, cluster 6 = 0.32). These results indicate the relatively high concordance between the ranks obtained in clusters 4 and 5 for both efficiencies while for the remaining clusters the ranks have not been very similar. The diversity between market and cost efficiency results indicate the importance of studying branch efficiency from different perspectives since it yields information regarding extrinsic and extrinsic strengths and weaknesses of each branch. It is worth clarifying that the output expansion under the market efficiency scenario concerns new sales of financial products while the cost efficiency scenario considers as an additional output the transactions occurring at the branch level.
When conflicting results arise between the two characterizations we get the signal that possible expansion of the scale of operation of a branch will add proportionately or disproportionately to the costs of the branch. Statistical analysis has shown that there are statistically significant differences between the returns to scale of each cluster on both market and cost efficiency assessments which reinforces the proposed methodology for clustering the network of branches. Thus, such clustering ways contains branches with accounts of very large sizes that at the same time have a relatively low number of transactions. Furthermore, the branches are located in affluent areas that do not have passing trade or working population. These characteristics indicate that the low cost efficiency of these branches can be attributed to the cost of quality that is expected to encounter in order to meet the service quality expectations of their large-size depositors.
CHAPTER FOUR
RESULTS, DISCUSSIONS AND ANALYSIS
During the process, participants went through workshops that involve seminars, classroom discussions and actual demonstrations. These programs allowed the staff to learn more about the company’s operations, the expectations of the company from them as well as their work responsibilities. The trainings taught the staff participants the different means of dealing with customers, colleagues and other work situations that they could encounter. The techniques for efficient customer relations and service provision were also part of the program. In addition, the program also helped the employees to get a clear vision on how exactly they could contribute to the company’s change management plans and future progress. Thus, trainings provided the participants the chance to comprehend how the change management project will be beneficial for them and the company. Significant developments were obtained by the CitiFinancial through its introduction of change. Its ability to develop effective developmental strategies for instance, had been developed. Through the initiation of change, the company management was able to develop a change project that directly addresses its main issues. By developing an appropriate branch expansion plan, CitiFinancial was able to gradually achieve its objectives. This development is important as this allows the company to apply cost-effective projects. The value of this development had been stressed by the contingency theory.
Basically, the contingency theory stresses that there is no single way on how one can manage different organizations. The main message relayed by the contingency theory is that organizational leaders cannot apply a single and perfect management approach to any working environment. This means that a general and overall effective management system is neither existing nor is it possible to develop one. This is mainly because each company is subjected to distinct internal and external factors that it must overcome. In order to overcome these challenging factors, an organization must then create an individualized style of management. The principles of the contingency theory support this general management concept. One, which has already been cited, is that there is no such thing as a universal means of management. Aside from this, an organization’s way of management must be adaptable to its subsystems. Most importantly, the contingency theory supports the concept that the success of the organizational system is largely dependent on it proper design based on the main activity of the organization and its type of workforce. Thus, both financial and non-financial indicators have their own strengths and limitations, in order to optimize the efficiency of performance measurement, both indicators were used as there analyzed its profit records every week as well as the number of customers and serves as the company’s financial indicators.
In such branch expansion, the presence of customer analysis is distinguished from broader customer profitability analysis as the former focuses on the old and new customers that uses CitiFinancial services and such branch launches in certain region as cost allocation and profitability analysis are important expansion ways for the Citigroup to remain focus in their strategies which intend to categories their business by lines of products and customers. A model of summary scores for each factor construct or variable was used to determine the measures for branch expansion strategies as there was the use of factor score to reflect the weighting across the items as expressed by each of the respondents. Factor scores have been used by other research for the same reason ( and , 1997).
Regression model
Upon testing of CitiFinancial’s proposition, the following equation was fitted to the data: Equation 1 where Y is the performance, X is early product adoption (high scores represent higher numbers of new products introduced in or before 1997), Z is the importance of customer accounting activities as high scores represent higher importance and S is the size of total asset value. Thus, the support for the expectation requires that the estimate of β3 is significantly different from zero.
The overall explanatory power of equation one is examined by a test of the increment in explanatory power that is obtained by a model that includes the interaction term, over a model that excludes the term. The regression model (equation 1a) was significant (R2 =0.264, F=2.697, p < 0.05). The interaction between early product adoption and the importance of customer accounting practices (H1) was significantly positive in the expected direction (t=2.796, p < 0.01). In addition, the inclusion of the interaction term in the regression adds significantly to the explanatory power of the model, compared to the main-effects only model (R2 =0.073, F=0.810, p < 0.498)[9]. These results support our expectation that customer accounting practices interacts with early product adoption to positively influence firm performance. The results of the ANOVA indicate that these differences are due to the interaction between early product adoption and the importance of customer accounting activities. The two-way interaction term is highly significant for Panel A (F=2.303, p=0.096).
Sensitivity tests
The use of customer accounting might be more beneficial for newly adopted services rather than products for two reasons. First, services such as telephone banking, e-banking and electronic payments have typically been created in-house and have required large capital investments. Banks that adopt these services have sought greater customer accounting information to determine the feasibility of offering them. In contrast, products such as credit cards, insurance and investment-related products are typically smaller in scale, in that they can be tailored to particular customer segments and are amenable to outsourcing. Unlike the model for the adoption of products, the model for the adoption of services was significant at p=0.082 (Adj. R2=0.132, F=2.295) and the interaction term was significant in the expected direction (t=2.654, p=0.013). It is important for CitiFinancial to use some of national distribution channel for an international corporation that is responsible not just for the traditional distribution functions but it is some branch of the company in that country with an exclusive agency for the territory and responsibility for marketing strategy.
The distribution unit in the country-market as a wholly-owned subsidiary has to manage a strategy for growth and be judged on organizational criteria including feasibility, level of desired risk, supportability and control issues with the implementation of preexisting marketing strategies such as communication platforms and target customer selection. Indeed, it is usually impossible to separate the process of market development from the process of organizational development. It is possible to identify commonalities across companies in this process of internationalization and so to describe the usual evolution of international marketing strategy. Such a framework has to begin by recognizing that different objectives for market entry may produce quite different outcomes in terms of entry mode and marketing strategy. It is better if there would adopt different entry modes for different markets and have a template that is followed in every markets as starts with market entry and a distribution channel respectively. In particular, it should be noted that effective control over marketing operations is impossible without timely and accurate market information of market participation, involving investments in local executives, distribution and marketing programs.
CitiFinancial’s strategic expansion process to other locations is then a strategic challenge as some locations require high rent payments. Finally, a complete pilot of the new design must be conducted. The pilot should examine the design’s general effect as well as the implementation procedure, while at the same time creating enthusiasm for full implementation. While these suggestions are useful, it is still upon the discretion of the company how change will be introduced. The important thing is that companies realize that risks are always present in organizational changes and that appropriate steps must be done to prevent or resolve them. Changes in the organization can be introduced in a several ways and approaches. New formal guidelines and procedures like organization chart, budgeting methods, rules and regulations can be considered as structural approaches on inducing change. On the other hand, rearrangements in work flow through new physical layouts, work methods, job descriptions and work standards are examples of technological approaches. In CitiFinancial’s nature of industry business, the management of a certain organization should be guided by strategic management principle to be able to attain its business goal.
The management should have the ability to initiate different management technique in order to continuously create business value. One of the important things to consider is the ability to manipulate supply chain from the external environment of the business. The supply chain is traditionally characterized as a stable system in which components and goods move smoothly from supplier to assembly customers. In addition, supply chain refers to the suppliers, distributors, wholesalers and retailers that involved in manufacturing a product and getting it to consumers ( and , 1995). Then, the effectiveness of CitiFinancial branching structure and its chain are crucial to the success of a business. Most of the respondents replied that the use of balanced scorecard prevent them from satisfying customer needs. They believed that although its effect is not that huge it contributes to them not being able to give excellent service. In the other question the respondents were asked what does technology or the lack of it do to enhance or inhibit effective process performance. Majority of the respondents believe that the technology they have helps in providing effective performance.
The improper use of technology makes it difficult for the respondents to provide effective service. In the eighth question the respondents were asked what does the organization structure do to enhance or inhibit effective process performance. The respondents replied that the company constantly research and discover new methods to produce products and services that will satisfy the clients. In the ninth question the respondents were asked what do the reward structures do to enhance or inhibit effective process performance. Majority of the respondents replied that the reward systems help boost the personnel spirit thus they assist in bringing an effective process performance. In the tenth question the respondents were asked what do the measurement systems or lack of them do to enhance or inhibit process performance. The respondents replied that the measurement system helps the company in correcting their wrong practices, after correcting themselves better products and services is then rendered to clients.
Data Analysis
The questionnaire and the response of the Citigroup have showed that there is a problem with the business process being used. The business process should be the one making things easier for the company but it is in way ineffective and it does not help the company in providing the best service to clients. The response of the people showed that the company has the best technology available but sometimes it is not used well and the technique of using it does not produce into creating a service that is above standards. The misuse of technology and no proper guidance in using it hampers the company to provide effective service. The response of the people showed that the company is doing everything they can to make the personnel give the necessary effort to provide clients with effective customer service. They are constantly discovering new ways to provide a service that is different from others. Moreover the response of the people showed that reward structures contribute and help in making the personnel of the company extract effort to provide products and services that will satisfy people’s needs. Reward structures if used can create a positive output to the company. It can help in creating highly reliable employees that can create products and services that can satisfy the needs of the clients. Lastly the response of the people showed that measurement systems help in making sure that the company provides excellent service.
CitiFinancial’s strategic branching allows measurement systems to provide analysis of how a company provides service to its clients and through it the company can be changed for the better. The measurement systems checks which group in the company are not doing well. After determining the weak part of the company proper actions can be taken against them. CitiFinancial and the banking industry was stable development of strategic expansion across nations (, and 1999). The ordinary costs are those incurred in behalf of strategic segments of the firm. These costs are only indirectly related to each unit and thus cannot be allocated among them except on some arbitrary basis. Any such allocation may well distort performance measures. Instead, the performance of each unit can be more logically evaluated based on its segment margin. As noted, a unit’s segment margin is measured as the difference between the direct revenue and direct expenses of that segment. (, 2005) Common costs are appropriately charged only against the firm’s total revenue in an overall performance analysis. It is the combined segment margins called contribution margins for all units which contribute to covering the common costs of the business. Any segment with a positive margin then helps to cover costs which otherwise would have to be absorbed by other units, thereby reducing overall profits. The operation must consider not only those decisions necessary to initiate the strategic expansion like for instance, location selection, financing, and staffing but also the degree of autonomy to be assigned to each store and the adequacy of the current accounting information system. (, 2005) Decisions about autonomy must take into account the image of the separate units, the level of day-to-day supervision available, and the extent to which buying can be integrated.
The strategic expansion will place much heavier demands on the firm’s accounting information system. In order to properly evaluate performance and to control the organization, accounting information needs will increase dramatically. A major part of the pre-expansion planning process, then, should involve an evaluation of the current system’s ability to handle the increased processing requirements. A well-conceived expansion plan will anticipate the problems likely to occur and significantly improve the chances for a smooth and successful transition to a multiple unit operation. The current bank efficiency studies recognize the difference between the cost and market penetration efficiency orientation. Two branches that service the same number of deposit accounts and customer transactions while incurring similar costs are considered equally successful in terms of cost efficiency. No information is provided as to the extent to which either of the branches underutilized its potential to generate more deposit accounts. The primary objective of a bank branch is to penetrate its market by selling financial products to new customers while delivering services to existing customers. Market efficiency has an output maximization orientation and can be defined as the extent to which individual bank branches, given their capacity and resources available, utilize their market potential by maximizing sales. The assessment of market efficiency will also draw upon the multilevel structure of retail organizations that is, to evaluate the market efficiency of individual branches, managed by local agents, in a way that controls for location and size decisions made by central principals.
Strategic Issues Regarding Expansion Consideration
In order to compete in an economy dominated by large chains and franchise organizations, successful small retailers may turn to the opportunities available through expansion. Thus, if the concept of the business and its execution is reasonably successful, the firm may choose to extend into national area of operations as the strategic expansion allows one to move beyond areas of business dominance to add outlets under different names to cover diverse market segments strategically pointing towards better expansion goals. As markets increasingly vary in wants, needs, and buying power, a single way of doing business may not appeal to all market segments. While the positive benefits may justify the decision to expand, certain drawbacks must be considered, even after the decision is made. Probably one of the most frustrating changes to come with expansion is diminished contact with clients. The success of owner-operated units is often attributed to the owner’s informal information gathering from customers and the owner’s ability to respond quickly to such information. Prior to expansion, the owner has probably served as the major managerial force, but new management positions must be created when an organization expands. The owner of an expanded business must consider the cost of hiring qualified managerial personnel and must conduct the search and hiring task with future conditions in mind.
ANALYSIS OF FINDINGS
CitiFinancial in its branch expansion will truly need to integrate and use appropriate factors in order to achieve a success note in expansion as there needs to imply a reasonable manpower and labor force team in realizing its goals for branching and be specific in terms of providing costs, location sites and safety measures in bringing out better branches. Nowadays, resource materials are quite high in their prices and probably twenty five branch expansion for CitiFinancial will cost millions of dollars to be spent as it needs extensive planning, lay outing and implementation. The potential locations for CitiFinancial to operate such expansion are better in Asian countries somewhere within the Asian Pacific Rim such as having possible extension of branches in the city of Hong Kong and the people CitiFinancial need for a single expansion project cannot be more than twenty people but not less than 15. The project team can work in five to seven members and the required number of staff once the expansion has been completed can be a total of eight individuals. As discussed in the literature review, the use of certain integrated supply chain is basically effective for CitiFinancial’s expansion project. The value of branches and its core competence are transparent in CitiFinancial’s branching network plan as the banking sector has the following aspects such as the following:
Community Presence
- Brand Awareness
- Customer Convenience
- Better access to niche segment
- Better access to Market Intelligence
- Better coordination with other channels such as DSA, merchant referral
Face 2 Face Interaction
- Better understanding on customer profiles and financial needs
- Better credit quality & fraud control
- Warm & professional customer service
- Instant response to customer & improve loan take up rate
Credit-Sales Synergy
- Staff with sales & credit under writing skills, can process both at the same time
- Instant response to customer & improve loan take up rate
- Optimize the risk-reward tradeoff
- Effective feedback channel for product feature improvement
Thus, reflecting CitiFinancial’s core competence as there realizes:
- One stop total solution to customers with financial needs
- Debt Consolidation
- High yield P-loan & Mort
- Speedy and Flexible Service
- Relationship Selling
CitiFinancial’s roles and responsibilities models are imperative in terms of realizing better branch networks as the bank incorporates better goals as there are:
- Demonstrate branch of excellence in specific area
- Assist DM to drive best practice in district level
- Act as back up of DM/ BM
- Comprehensive understanding on the Community
- Develop merchant relationship
- Identify micro-marketing opportunities
- Coordinate with Marketing on micro-marketing events
- Know how to measure, then know how to manage key drivers and how to read MIS report
- Conduct monthly planning to achieve financial result
- Identify strength and weakness of his/her team
- Provide coaching to teammate if necessary
- Effective Communications: Lead by example like, align with business direction and focus
- Demonstrate good control and compliance
The above points clearly emphasis what CitiFinancial is composed of and what to expect from their expansion of branches that will provide concise picture of their values and goals for becoming one of the best in the banking sector industry as CitiFinancial adheres to:
- Achieve top up conversion by vintage: 50%
- Achieve account target for:
- New Branches: 8,400 for the year 2008-2010
- Portfolio Actions: 10,700
- (VOE Score: 80)
- (Employee attrition rate: <25%)
- Open 3 new branches by end of 2007)
- Expand product set for branch network:
- Mortgage (USMM new vol.)
- Insurance (USM revenue)
- Cards, Revolving Loan
- CSLM Score: 78
- Satisfactory Result on CCR and External Audit
CitiFinancial’s focus for strategy is really moving towards a better and a positive branch expansion network in the sense that the bank will have to meet a sound process cycle in achieving a:
- Multi Product Retail Store
- People Development and Staff Morale
- Effective Communication
- Customer Focus and Professionalism
Moreover, some of branch expansion challenges that CitiFinancial may face upon the realization of such branch expansion plans will be the affective mode in terms of the three aspects in cost, location and safety as the latter will critically need to be assessed as well as evaluated for expansion victory of CitiFinancial branches, the challenges also involving banking risks and possible competition is not far from reality, the overall implementation of the process and how the bank handles crucial situations such as relating to the staff and management and must look beyond in building effective customer relations and good rapport to all the people involved in the expansion is important as it is.
Then, if the needed and the most critical factors for expansion are met and that they have a sense of parallelism in CitiFinancial’s crafting of structure and organization of management then, there can be no doubt that CitiFinancial is prepared to exert enough effort in expanding its branches as the evidence can be in some realistic partnerships for expansion and the additional branches CitiFinancial is operating (see literature review and appendix section).
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
SUMMARY
CitiFinancial can be nearly unanimous as the branches will help protect the banking franchise to the extent that they sell products and services, not just collect deposits and make funds available. Put another way, banks have to push more business through existing facilities. Fading are the days of the sleepy branch office catering to the regulars running their errands, where the manager tended to administrative tasks in a back office. Today, the branch manager is chief salesman, responsible for motivating and managing the sales staff behind the teller counter and at the platform desks not to mention near the produce section, in the case of a supermarket bank branch. Sales is the focus at branches of CitiFinancial and does not people to come into the branch just to do transactions and that changing the branch from an order-taking facility to a sales office is not easy. Part of the reason branch efficiency is such a difficult equation to solve is that branches are rarely identical.
It is true that in urban settings where the residential and business communities can change dramatically from neighborhood to neighborhood in terms of lending needs and market potential. Some branches are big deposit gatherers from older people and other branches are big mortgage lenders and consumer lenders to young people. Branches everywhere will become more specialized as the branch is kind of a one stop for everything like if want to make deposits then, come in CitiFinancial bank branches. Some branches are going to be just paying and receiving stations and some of the services traditionally offered in a branch will be offered a different way like for instance, many banks don’t have home mortgage lenders in the branches anymore as mortgage lending today is done in house, in office and in broker’s office respectively.
CONCLUSIONS
Therefore, CitiFinancial in its strategic expansion will truly need to integrate and use appropriate factors in order to achieve a success note in expansion as there needs to imply a reasonable manpower and labor force team in realizing its goals for branching and be specific in terms of providing costs, location sites and safety measures in bringing out better branches. Nowadays, resource materials are quite high in their prices and probably twenty five branch expansion for CitiFinancial will cost millions of dollars to be spent as it needs extensive planning, lay outing and implementation. The potential locations for CitiFinancial to operate such expansion are better in Asian countries somewhere within the Asian Pacific Rim such as having possible extension of branches in the city of Hong Kong and the people CitiFinancial need to understand roles of strategic project that can be more than twenty people but not less than 15. The project team can work in five to seven members and the required number of staff once the expansion has been completed can be a total of eight individuals. Aside, the significance of addressing strategic issues on the institution’s expansion plans is to foster imperative awareness to the management that being strategically motivated is to be open to such issues of expansion as it will help CitiFinancial a sound and efficient execution in expanding branches in proper business pattern and organization context.
RECOMMENDATIONS
There is the need to measure strategic efficiency ranking of CitiFinancial
The basis of the analysis of CitiFinancial performance is on profit efficiency concept, rather than the often-used cost efficiency concept because profits are conceptually superior to costs for evaluating overall firm performance. The economic goal of profit maximization requires that the same amount of managerial attention be paid to raising a marginal dollar of revenue as to reducing a marginal dollar of costs. As well, if there are substantial unmeasured differences in the quality of services across banks and over time as CitiFinancial produces higher quality services should receive higher revenues that compensate it for at least some of its extra costs of producing that higher quality. As discussed below, researchers perform such testing using cost efficiency as a robustness check, with similar findings. There may also be concerns about the effects of geographic expansion on the supply of some types of locally oriented services, such as relationship credit for small businesses.
Then, strategic expansion may create large organizations with headquarters that are distant from potential relationship loan customers and the branches may have difficulty transmitting soft relationship information through their communications channels, may be focused more on serving large corporate customers, may be headquartered in very different banking environments. However, to some extent these effects may be offset by the use of credit scoring and other financial technologies that may allow banks to lend at greater distances by hardening the credit information. Moreover, the increase in competition resulting from the removal of branching restrictions has been linked to the weeding out of weak banks ( and , 1998, and , 2003). There similarly argue that the expansion of branching in the 1920s facilitated an increase in competition. To help clarify the theoretical debate over the effects of competition on financial stability, we directly test how the growth of branching influenced bank competition and how this in turn affected bank failures. Since, there emphasizes changes in the competitive environment induced by the onset of branch banking, it is necessary to test the model using data from a period when branch banking was expanding in scope.
Moreover, because there want to test how branching influences the stability of banking systems, we also need to examine a period when there were numerous failures. First, the expansion of branching should change the competitive environment. If branch banking removes weaker banks from a banking system, then states permitting branch banking should experience higher merger and voluntary liquidation rates and lower entry rates than states prohibiting it. Second, over time more competition in states permitting branch banking should result in lower profit levels. Finally, if the competitive shakeout induced by branching stabilizes banking systems by removing weak banks from the system, then in the long run failure rates should be lower in states where branch banking was expanding. The link between branching, competition, and stability ought to be present even after controlling for any benefits to stability coming from improved geographical diversification of bank portfolios.
The need to understand the impact of strategic issues concerning CitiFinancial’s expansion reflecting its financial stability
An argument commonly articulated in the literature is that branch banking stabilizes banking systems by reducing their vulnerability to local economic shocks: branching enables banks to diversify their loans and deposits over a wider geographical area or customer base. Restrictions on branching have been linked to the instability of banking systems. (2000) argues that bank failures were more prevalent in regions of the United States without branch banking as well as in countries lacking it. The notion that branch banking stabilizes banking systems by increasing diversification opportunities is in fact an argument with old roots. The proponents of branch banking used this argument to encourage state legislatures to adopt laws legalizing branch banking. It is therefore possible that the stability effects of branching are related to something besides or in addition to diversification. Furthermore, innovative CitiFinancial branches that were set up in previously restricted markets may have been more adept at realizing higher rates of return than comparable new unit banks since branches could transfer deposits out of the local market to regions where capital was in higher demand.
The ability to obtain a cost advantage through branching and realize higher rates of return made entry into existing local markets easier for branch banks than new unit banks. Indeed, branch banking may have been instrumental in bringing banking and banking competition to small towns. Relationships with correspondents were weakened due to possibly inducing banks to pursue the loss of deposits by buying banks and converting them to branches. Dramatic improvements in road networks and improvements in telephone networks likely improved the ability of managers to oversee branch networks. It should be noted that the expansion of branching, which was driven by the establishment of technological changes, population growth and economic growth, is quite different from expansion of branching which appears to have been more strongly influenced by changes in regulation ( and , 2003, and , 1998). Successful expansion requires considerable strategic planning, not only to implement the expansion but also to improve the chances of survival once the expansion is in place.
REFERENCES AND BIBLIOGRAPHY
APPENDICEs
APPENDIx one
CitiFinancial Opens 200 Branches in North America in 2006
Citigroup Inc. January 3, 2007
Baltimore, MD – CitiFinancial today announced that it opened its 200th branch of 2006 on December 22, located at 9251 Baltimore National Pike in Ellicott City, Maryland. The branch is one of three new CitiFinancial offices opened in Maryland in 2006 as part of the company’s North American expansion plan. CitiFinancial now has more than 2,000 branches in the United States. “Opening 200 branches in one year is a significant accomplishment,” said , Chairman and Chief Executive Officer of CitiFinancial. “By expanding our distribution into more markets, we’re able to serve more consumers in more communities than ever before, continuing to lead the industry as the premier community-based lender.” With the addition of Ellicott City, CitiFinancial now has 36 branches in Maryland and more than 300 in the Northeast. By early 2007, CitiFinancial expects its total North American branches to reach more than 2,500.
“We are also thrilled to open a branch so close to our downtown Baltimore headquarters,” Mr. continued. “Our 1,000 Baltimore-area employees are already active in this area, volunteering their time to serve many local organizations. I am confident the new Ellicott City branch team will help us make a difference in our community.” “I am proud to help the consumers in the Ellicott City area reach their financial goals and dreams,” said Althea Moore, manager of the new Ellicott City branch. “My branch team and I are committed to helping our customers take control of their financial futures.” CitiFinancial, a financial services company specializing in personal and home equity loans, has been in business in the United States since 1912, with more than 3.5 million customers and more than billion in receivables. In addition to its core products, CitiFinancial also offers affiliate products including auto loans, insurance, and Citi credit cards.
APPENDIx two
INTERNATIONAL OPERATIONS
Mexico
Consumer revenues and net income growth reflected increased retail banking deposits and loans, each up 16%, and growth in cards average receivables of 63%. Results included an increase in credit costs due to portfolio growth and target market expansion. Credit conditions remained stable. Corporate and Investment Banking revenues and net income declined as increased corporate customer activity was offset by the impact of a flat yield curve and increased credit costs. Credit costs increased, primarily due to the absence of a million pre-tax loan loss reserve release recorded in the prior-year period. Credit conditions remained favorable.
Europe, Middle East and Africa
Consumer results reflect a decline in customer loan balances, primarily reflecting the write-off of retail banking loans in the third quarter 2005, which was partially offset by the benefit of increased retail banking deposits, improvement in net interest margin, and a decline in expenses. Results also include a million after-tax gain on the sale of a card merchant acquiring business.
Corporate and Investment Banking revenue and income growth was driven by increased customer activity across equity markets, investment banking, and lending, and record revenues in transaction services. Net income growth also reflects lower expenses.
Japan
Consumer income increased primarily due to reduced expenses and lower credit costs in consumer finance. Retail banking income declined as revenue growth was offset by increased costs related to the integration of former private bank clients and continued implementation of expanded control and compliance procedures. Corporate and Investment Banking revenues and income increased sharply due to strong growth in equity markets, distressed debt, and transaction services and a 8 million after-tax gain on the sale of Nikko Cordial shares.
Asia
Consumer results reflected the benefit of increased customer volumes, which were partially offset by continued net interest margin compression in cards and retail banking, and increased expenses related to branch openings. Cards and consumer finance average receivables grew 8% and 57%, respectively. Results also reflect the negative impact of the labor negotiations in Korea.
Corporate and Investment Banking revenues reflect double-digit revenue growth in equity markets, investment banking, lending and transaction services, which was partially offset by a decline in fixed income markets. Net income declined as higher business volumes led to increased expenses. Credit conditions remained favorable.
Latin America
Consumer results included double-digit receivables growth in cards, consumer finance, and retail banking. Revenues and net income declined due to net interest margin compression, increased expenses due to the Credit card integration and branch expansion, and the absence of a million pre-tax gain on the sale of Orbitall recorded in the prior-year period. Credit conditions remained favorable. Corporate and Investment Banking results reflect double-digit revenue growth in fixed income markets and transaction services, which were more than offset by lower lending revenues, due to net interest margin compression and higher credit costs. Credit costs increased due to the absence of a million pre-tax loan loss reserve release in the fourth quarter 2004. Credit conditions remained favorable
Source of the above information:
APPENDIx three
Example Related Research: CitiFinancial and NTIC Announce Expansion of Partnership
CitiFinancial and the National Training and Information Center (NTIC) today announced the expansion of their partnership, designed to promote stable home ownership in communities around the country. Nearly a year after striking a groundbreaking agreement, CitiFinancial and NTIC have broadened their commitment to not only meet the lending needs of individuals and communities but to promote financial education, a fundamental building block to financial stability in neighborhoods across the country. CitiFinancial and NTIC and its network of grassroots organizations in Chicago, Central Illinois, Cincinnati, Cleveland, Des Moines, Indianapolis and Syracuse are pleased to announce that a specialized program will be developed to promote financial literacy for individuals. CitiFinancial will provide its financial education curriculum, as well as 0,000 over two years to support the program. NTIC and its local community groups and CitiFinancial will work together to blend their resources for the common goal of developing individuals’ personal finance skills, enabling them to make sound financial decisions. “CitiFinancial is pleased its relationship with NTIC and its community-based organizations continues to strengthen and expand,” said , President and CEO, CitiFinancial.
CitiFinancial and NTIC will continue to work together to:
- Review the progress of CitiFinancial’s Real Estate Lending Initiatives and encourage the adoption of similar practices by other lenders
- Focus on a multi-stage foreclosure review process for borrowers in NTIC and local-affiliate cities
- Develop and promote affordable mortgage product solutions for customers, especially in the communities served by NTIC and its affiliates
- Implement a review and repair process for loans submitted by borrowers from cities served by NTIC and its affiliates
CitiFinancial continues to make enhancements to its industry-leading changes to its lending and sales practices. Most recently, CitiFinancial introduced a new mortgage product that provides a near-prime rate loan to qualified applicants through its branch network. This is in addition to the elimination of single premium credit insurance for real estate secured loans a reduction of the maximum number of points charged on real estate secured loans originated via CitiFinancial’s branch network to three from five; the implementation of Customer First – redesign of credit insurance sales practices across its branch network and a complete revamping of its broker-based operations.
There was expanding customer base in transaction services contributed to growth in liability balances and assets under custody of 12 percent and 9 percent as there was continued investment spending led to significant expansion of our physical branch distribution network. Citibank’s international branch openings as well as acquisitions for has included 68 in Mexico, 36 in the Philippines, 16 in Brazil and 15 in Russia. CitiFinancial international branch openings included 78 in Mexico, 73 in India, 28 in Korea, and 23 in both Brazil and Poland.
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