Siam Commercial Bank (SCBTB; Baa1(stb)/BBB(stb)/BBB(stb)) is seen as a sound and profitable bank. It has a slight 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 17.4% at the Holdco (SCB X) level and 17.2% at the Bank level at Mar-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.

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.

High household debt and challenged SMEs remain as longstanding issues in Thailand, but 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 has given a stronger FY24 NIM guidance than peers, supported by a strong deposit franchise and a growth focus on higher yielding retail loans. Recent guidance from authorities to reduce borrowing rates for vulnerable pockets of SME and retail customers and improve their lending access however present some headwind.