Siam Commercial Bank (SCBTB; Baa1(stb)/BBB(stb)/BBB(stb)) is seen as a sound and profitable bank with a good mix of retail, corporate and SME businesses. It targets to maintain margins by growing personal unsecured lending.

SCB’s capital buffer is strong with a CET1 ratio of 17.7% at the Holdco (SCB^X) level and 15.5% at the Bank level at Dec-22. 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 platform businesses and to enable greater flexibility and independence.

The bank’s new strategic direction is sensible given limited domestic growth opportunities. However, it comes with execution risk since the fintech and platform space are new to SCB. The bank, being the cash cow within the group, may have to commit more capital further down the line, posing mild pressure on the group’s capital in the near to medium term.

Risks from prolonged forbearance measures and high household debt remain for the Thai banks, but our view on asset quality and margin pressure is more sanguine now as China’s earlier than expected reopening brightens the outlook for Thai tourism and overall growth this year, which in turn bodes well for consumer and SME health.

SCB has a fairly large COVID restructured book still compared to its peers, but asset quality of this book may also trump the others as a third (~THB 100 bn) of the exposures are accounts in the hospitality sector which would be poised to benefit from China’s reopening.