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Siam Commercial Bank
- Sector: Financial Services
- Sub Sector: Banks
- Country: Thailand
- Region: Thailand
- Bond: SCBTB 3.9 24
- Indicative Yield-to-Maturity (YTM): 5.573% (Indicative as of March 2)
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Fundamental View
AS OF 27 Dec 2024Siam Commercial Bank (SCBTB) is seen as a sound and profitable bank. It has a focus on the retail segment and targets to increase margins by growing personal unsecured lending. Recent credit costs have been elevated due to the retail exposure.
The capital buffer is strong with a CET1 ratio of 17.8% at the Holdco (SCB X) level and 17.3% at the Bank level at Sep-24. It announced a major business overhaul in September 2021 to establish a new parent company called SCB X to segregate the group’s core banking services from its new fintech and digital businesses and to enable greater flexibility and independence.
Business Description
AS OF 29 Nov 2024- Siam Commercial Bank was founded as the "Book Club" in 1904. In 1907, it started operating as a commercial bank and was renamed as "The Siam Commercial Bank". It completed its IPO on the Stock Exchange of Thailand in 1976.
- The bank is 23.58% owned by the King of Thailand, and a further 23.32% is owned by the Vayupak Fund 1, which is controlled by the government.
- SCB is the fourth largest Thai bank by assets and is known for its robust retail franchise.
- Its loan profile was 35% corporate, 17% SME, and 48% retail as of end-September 2024.
Risk & Catalysts
AS OF 29 Nov 2024- The bank’s new strategic direction is sensible given limited domestic growth opportunities, but it comes with execution risk since the fintech and platform space are new to SCB, as well as higher credit costs. However, we take comfort in the ringfencing of the bank unit (SCB) from the Group’s riskier business units, and capital support to the Gen 2/3 businesses is subject to a minimum 16% CET1 ratio being maintained at the bank.
- Credit costs are elevated due to SCBX’s greater retail exposure and the macro backdrop of sluggish growth and high household debt. However, SCB X’s higher NIM and low-to-mid 40%s cost-income ratio provide comfortable room to absorb its higher credit costs and maintain a similar level of returns as peers.
- SCB X’s NIM has been on a stronger trajectory than peers, supported by a strong deposit franchise and a growth focus on higher yielding retail loans.
Key Metric
AS OF 29 Nov 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.58% | 2.63% | 2.50% | 2.88% | 2.88% |
| ROA | 0.9% | 1.1% | 1.1% | 1.3% | 1.3% |
| ROE | 6.7% | 8.4% | 8.3% | 9.3% | 9.0% |
| Equity/Assets | 12.6% | 13.4% | 13.5% | 14.1% | 14.2% |
| CET1 Ratio | 17.2% | 17.6% | 17.7% | 17.6% | 17.8% |
| Reported NPL ratio | 3.68% | 3.79% | 3.34% | 3.44% | 3.38% |
| Provisions/Loans | 2.14% | 1.84% | 1.45% | 1.82% | 1.79% |
| Gross LDR | 93% | 93% | 93% | 99% | 100% |
| Liquidity Coverage Ratio | 188% | 202% | 216% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 2024SCB is the 4th largest bank in Thailand and has a leading retail franchise. Asset quality during COVID was poor. It created a new HoldCo structure (SCBX) in 2022 to shift digital units and unsecured retail loans outside the bank, and pledged a >16% CET1 ratio at SCB. The BOT has also ringfenced SCB which further reduces the risk for the SCBTB bonds. The NIM has been strong vs. peers in 9M24 as expected, and we see this continuing as rates come down. COVID Blue scheme loans though still sit within SCB and is the highest % of loans among peers (12% at 4Q23). Weaker asset quality from this book and general retail exposure given high household debt have resulted in credit costs staying elevated, but these have been comfortably absorbed. We keep SCBTB on M/P and see ~5 bp outside BBL as fair.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: January 25, 2023
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