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 personal unsecured lending. Recent credit costs however have been elevated due to the retail exposure.

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. The capital buffer is strong at both the Holdco (SCB X) and Bank (SCB) level.

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.

We expect NIMs at the Thai banks to see a further decline this year on the back of policy rate cuts. Margin pressure at SCB X however is mitigated by a strong deposit franchise and a growth focus on higher yielding retail loans. Loan growth however is likely to remain modest in FY25 given a still soft growth outlook for Thailand.

Credit costs are elevated due to SCBX’s greater retail exposure and the macro backdrop of sluggish growth and high household debt. Even so, 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.