Interview with Igor Tham, chairman of the board, Citibank (Slovakia), a.s.

He left Slovakia in 1968 at the age of 18, convinced by the arrival of Warsaw Pact tanks that he had no future in Czechoslovakia. He returned following the 1989 revolution as a banking professional having spent over two decades in Australia. He now heads Citibank's operation in Slovakia, and considers himself lucky to have been part of his country's evolution from independent state to economic tiger. Igor Tham.
photo: photo: Courtesy of Igor Tham

The Slovak Spectator (TSS): You left Slovakia as a teenager and found asylum in Australia at a time when there was no private enterprise here, and because you didn't see much future for yourself. Do you take a certain satisfaction in returning as the head of a privately owned bank?

Igor Tham (IT): I didn't come back with Citigroup at the time, but with the European Bank for Reconstruction and Development (EBRD), to set up their office in Czechoslovakia in 1992 and in the Slovak Republic in 1993. I joined Citigroup in 1995 when operations in Slovakia were being set up. I had been following the changes that happened in Czechoslovakia after 1989 very closely, and I wanted to be part of this development, this opportunity, this change. Life in Australia was quite settled and easygoing, and I felt this would be a bit more dynamic.

The other reason was that I never really knew Slovakia. I was a young guy in 1968. I had this nagging feeling that I didn't even know the country I was born in, and I had a perfect opportunity to come back as a professional. I could come back and not only be a part of the change, but also actually contribute to it. That was meaningful for me. And I'm very glad I did come back, because my expectations were more than met.

Yes, Slovakia has gone through a turbulent evolution since 1989. When you are on the inside you see a lot of the bickering and arguments, the political inconsistency, what you might call the bad stuff. Democracy took some time to evolve. But when you take an outside view, you see how much has been achieved in Czechoslovakia and then Slovakia since 1989. It's an incredible effort, especially when you consider that in 1993 Slovakia had to establish much of its infrastructure including the national bank, ministries or embassies, because most of these stayed in Prague, as did a lot of the Slovaks who had been working in high positions in these institutions. So at the same time Slovakia was setting up its ministries and other institutions, it also faced a brain drain.

But here we are in 2005, and Slovakia has not only caught up with the neighbouring countries, it is even overtaking them thanks to the reforms that have been instituted and the way everything has developed. It's been terrific to be here and be a part of that.

TSS: Citibank celebrates its 10-year anniversary in Slovakia in 2005. What events in that period have you been drawing attention to?

IT: It is difficult to point to any one particular event. We set up our operation from a green field, we didn't purchase an existing institution or inherit a large staff through privatization. During these 10 years we focused on a gradual growth of our business, we invested a lot into our people. We have definitely set up a very strong corporate bank in an intensifying competitive environment. More then any specific achievement, I am proud that we have managed to build a stable position on the Slovak banking market and win the respect of our competitors and customers.

TSS: Citigroup introduced a "shared responsibility" doctrine in March 2005. Is that just an internal company policy, or will it actually have some impact on the outside environment?

IT: Yes, it will. [Citigroup CEO] Chuck Prince's and our mission is to make Citigroup the most respected financial institution in the world. His "five-point plan" stresses training, talent development, performance appraisal, communication and control. The plan is to improve these things globally, although in some countries there may be more emphasis on one aspect than another. In Slovakia we have been performing pretty well because our operation is simpler, as we only have two businesses. We are at present in over a 100 countries and in many of them we operate multiple businesses. In these countries the complexity of our operations is greater, which makes them more difficult to manage.

While the plan is a roadmap for what has to be done, the underlying issue is shared responsibility, both to our clients and to each other, as well as to our franchise. We have to put its long-term health ahead of any unit's short-term gains.

The overall impact of all of this will ensure that we run a more efficient operation, and we have satisfied employees working for us, which will have a positive impact on our customers and the outside environment.

TSS: Is this a response to the crisis of faith in corporate governance and the financial sector in general?

IT: Yes, to an extent. But it's also recognition that while Citigroup's financial performance has been very good, we can still do more in respect of creating market value through people and organisational capabilities. That is building these intangible values that are not accounted for by current earnings.

It's the same with all companies. The vision 10 years ago was that the price-earnings ratio was 90% driven by earnings. The research is now saying that this is not the case, that the percentage is much smaller, and that this intangible - the trust, the way people view the organization - has a lot to do with it. This intangible concerns the future, it involves a trust as to how the company will behave in certain situations, and this is what we are trying to build up, beginning with all our operations.

TSS: Do you see such approaches, and the presence of foreign investors in general, having an impact on the Slovak business environment?

IT: Oh, definitely. I've particularly noticed the change in corporate governance, which was initially mainly driven by the foreign companies that came here, and now also by the Slovak companies which have changed to this mentality. Let's face it - corruption has been an issue in Slovakia, and although it's on the way out, it's still there. Correct governance and corporate ethics will help to eliminate it through the pressure of competition. In the end, you win or lose based on how good you are.

TSS: Citibank has also in the past lent money to state institutions such as Slovak Railways (ŽSR) and the SE energy utility. Have you seen corporate governance improve there as well?

IT:I've definitely seen improvement, yes. Most of these institutions now have professional management teams who are skilled and experienced. A lot of them have come from private enterprise. Before you had offices where the socialist mentality was in the background. But with the political changes and the evolution of the business environment, a big evolution occurred at these companies as well. And because they now better understand the products the banks are offering, they can do sophisticated transactions, they're more efficient, which has improved the communication between them and banks.

TSS: The banking sector was the first to attract large foreign investment in the 1990s. Are banks still out in front of the investment field in 2005?

IT: It's been a natural evolution. The first thing that had to be fixed here was the banking sector. It should have been done earlier than it was, because it was 2001 by the time the last of the banks were finally privatized, with the exception of Poštová banka, and even that bank now has private capital. A lot has been achieved between then and now, because when you had inefficient allocation of funds, inefficient banks lending to inefficient companies, it made for an equation that could not lead to economic advance. Clearly, the first thing that had to be done was to clean the banks up and get rid of all their bad loans. Yes, it cost us all a lot of money, but the important thing is that it was done. Foreign capital was brought in and made sure the banks were putting the right foot forward. New management was brought in, and slowly but surely created a totally new banking environment.

Then we had the reforms the government has launched, which have been very important to foreign direct investment coming in. They were a key element in the equation, all the more so because they happened at the same time the banks were being cleaned up. Together, this led to the kind of economic environment investors need, to the extent that Slovakia's ratings now are totally different than they were three or four years ago.

Financial institutions and insurance companies now have about 23% of the overall FDI inflow, while the manufacturing sector has about 39%, as of March 2004. It's good that the other industries have caught up, such as the auto industry, which is attracting a lot of investors because of the high education and the technical skill base that has always been here, as well as Slovakia's good location.

At the same time, I don't see the banks playing a leading role in decisions by auto companies to come here. We've reached a certain standard that is common in the Western world, but there's also a lot more competition now, a lot more sophistication, a lot more products on the market. It's important for investors that the banks are now in a good state and can provide all the services they need, but their decisions are more tied to things like the cost of labour, local skills, legal infrastructure, the positioning of the country, and some of the incentives various governments offer them.

TSS: Is the enormous growth in mortgage lending in Slovakia due to the fact that banks are not doing so well in corporate lending, or because better legislation now gives them improved risk protection?

IT: I think it's more the latter than the former. New products can only be introduced when the time is right. The security arrangements prior to the new legislation on mortgage lending made it very difficult, if practically not impossible, for the banks to sell the property that had been pledged. Collateral was then a questionable instrument, whereas it is now a strong security instrument.

Yes, banks like to lend. But they also like to get their money back. Security arrangements are an important part of the legal infrastructure, and in their absence it was pretty difficult to offer this type of product.

It's true that the corporate sector has seen a slow-down in its borrowing activity. A lot of the previous large borrowers have been privatized, and a lot of foreign investment has been flown in, so they are more capitalized. Their management structures are also more efficient, so they don't need so much working capital, and they manage what capital they have better.

I think a lot of the larger projects - KIA, Peugeot, Ford-Getrag and many others - are being financed through the capital these companies are bringing here. A lot of the suppliers that are coming are still just looking for real estate, locations to set up their factories. It will also take some time before privatized companies, or companies that have been entered by a strategic partner, start new projects. But it's coming, and they will also have to leverage up when they start paying out dividends, which will tend to increase lending activity.

TSS: You must come across a lot of people in the course of your business who used to hold senior positions during communism. Do you look at them from a purely professional point of view, in terms of what they offer and what they have accomplished, or, especially as a former political exile yourself, do you see their communist past as a kind of handicap to playing an important role in the economy now?

IT: I don't necessarily think that people who were successful under the previous regime shouldn't be allowed to be successful under this regime. Knowledge is easily transmitted from one regime to another, especially in the form of technology and know-how in manufacturing, infrastructure and so on.

The political aspects of the change in regimes are another issue. I try to judge people by what they do and how they do it, and rely on my own experiences with their companies, their track record and how good they are as managers. Clearly, adherence to sound corporate governance is a prerequisite.

There are a lot of companies and managers in this country that got their start in one way or another after 1989 and, like the poor health of the banks before they were privatized, I think we have to regard it as the cost of this country's return to democracy. Maybe I am able to look at it that way because I have been on the outside as well as on the inside, and I can see that the most important thing above all is not the infighting and past grievances, but that things keep progressing in a positive direction.

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