Fundamental ViewAS OF 23 Feb 2023
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 (SCBX) 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 SCBX to segregate the group’s core banking services from its new fintech and digital platform businesses and to enable greater flexibility and independence.
Business DescriptionAS OF 23 Feb 2023
- 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 23.35% owned by the King of Thailand, and a further 23.10% 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 36% corporate, 17% SME, and 47% retail as of end-Dec 2022.
Risk & CatalystsAS OF 23 Feb 2023
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.
Key MetricsAS OF 23 Feb 2023
|Reported NPL ratio||3.34%||3.79%||3.68%||3.41%||2.85%|
CreditSights ViewAS OF 09 Jun 2023
SCB is the 4th largest bank in Thailand and has a leading retail franchise. Asset quality during COVID was disappointing. It still has the largest proportion of loans under COVID relief. About a third are to tourism related corporates which are expected to trend well this year, while ~42% are to retail where some slippage is likely to result from a meaningful interest step-up next year. It created a new HoldCo structure in 2022 to shift digital units and unsecured retail loans outside the bank, and has pledged to maintain a >16% CET1 ratio at the bank unit. The BOT has also ringfenced the bank against the non-bank units which further reduces the risk for the SCBTB bonds. Improved Thai economic growth this year from a good tourism recovery is also a tailwind.
Recommendation Reviewed: June 09, 2023
Recommendation Changed: January 25, 2023