Siam Commercial Bank (SCBTB) has been a sound and profitable bank. It has a focus on the retail segment and targets to increase margins by growing its non-traditional banking businesses. 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 (Gen 1) from its new fintech and digital businesses and to enable greater flexibility and independence.

Recent credit costs however have been elevated due to the riskier exposure that these entail. However, profitability remains healthy and the capital buffer is strong at both the Holdco (SCB X) and Bank (SCB) level.

We see a significant impact to the Thai economy from potential US tariffs, with ripple effects in the form of lower bank NIMs and higher credit costs than earlier guided for this year. Moody’s also downgraded its rating outlook on the Thailand sovereign, and consequently the Thai banks including SCB X, to negative on 29 April 2025, citing increased risks to Thailand’s economic and fiscal strength, partly due to the potential impact of new US tariffs.

Margin pressure at SCB X however is mitigated by a strong deposit franchise and a growth focus on higher yielding retail loans. Loan growth though is likely to remain modest in FY25 given a still soft growth outlook for Thailand.

The group’s 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, SCB X’s higher NIM and low-40%s cost-income ratio provide comfortable room for that to be absorbed. We also take comfort in the ringfencing of the bank unit (SCB) from the Group’s riskier business units, and management’s minimum CET1 ratio of 16% at SCB.