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Region: Thailand
Siam Commercial Bank
- Sector: Financial Services
- Sub Sector: Banks
- Country: Thailand
- Region: Thailand
- Bond: SCBTB 3.9 24
- Indicative Yield-to-Maturity (YTM): 5.573% (Indicative as of March 2)
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): Baa1 / BBB+ / BBB+
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Fundamental View
AS OF 23 Feb 2023Siam 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 Description
AS 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 & Catalysts
AS OF 23 Feb 2023The 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 Metrics
AS OF 23 Feb 2023| THB mn | FY22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| PPP ROA | 2.50% | 2.63% | 2.58% | 3.11% | 2.37% |
| ROA | 1.1% | 1.1% | 0.9% | 1.3% | 1.3% |
| ROE | 8.3% | 8.4% | 6.7% | 10.4% | 10.8% |
| Equity/Assets | 13.5% | 13.4% | 12.6% | 13.5% | 12.0% |
| CET1 Ratio | 17.7% | 17.6% | 17.2% | 17.0% | 15.1% |
| Reported NPL ratio | 3.34% | 3.79% | 3.68% | 3.41% | 2.85% |
| Provisions/Loans | 1.45% | 1.84% | 2.14% | 1.70% | 1.15% |
| Gross LDR | 93% | 93% | 93% | 98% | 99% |
CreditSights View
AS OF 09 Jun 2023SCB 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
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
How may we help you?
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Fundamental View
AS OF 23 Feb 2023Bangkok Bank (BBL: Baa1 (stable)/ BBB+ (stable)/ BBB(stable)) is a family run conservative financial institution, with high capital and liquidity levels.
It acquired Indonesia’s Permata Bank in 2020 which resulted in a meaningful decline in its CET1 ratio to 14%. Management aims to maintain the CET1 ratio ideally at the 15-16% level, but the timelines are unclear.
Its profitability as measured by ROA and ROE is below the industry average, due in part to higher exposure to the lower-yielding corporates segment that has resulted in a lower NIM. That said, this has supported its asset quality outperformance versus peers, and better positions the NIM to benefit from the rising rate environment given that debt servicing capabilities of households and SMEs remain fragile.
Business Description
AS OF 23 Feb 2023- Bangkok Bank was set up in 1944 and was listed on the Stock Exchange of Thailand in 1975. It is a family-run bank and the current President of the bank, Chartsiri Sophonpanich, is the grandson of the founder of the bank.
- It is the largest bank by assets in Thailand. It was briefly surpassed by Kasikornbank in 2018, but the Bank Permata acquisition has taken BBL back to No.1.
- The bank is corporate-loan focused, and the loan book was split 43% corporate (~60% including international loans), 20% SME, 12% retail, and 25% international as at 4Q22. It is by far the most international amongst the Thai banks, with branches in 14 countries.
- BBL's overseas presence has been enhanced by the acquisition of Bank Permata, the 12th largest bank in Indonesia. Bank Permata's asset size is ~10% of that of BBL.
Risk & Catalysts
AS OF 23 Feb 2023Profitability has been the main issue with BBL as its returns have perennially been below the industry average. This is down to its primarily corporates focus leading to the lowest margins among its country peers.
However, the greater resilience of corporates against the ill-effects of the COVID-19 pandemic than the SME and retail sectors has made for lower pandemic-related losses and restructured loans, supporting BBL’s asset quality outperformance against its peers. In the current rising rate environment, its corporates focused book should also better withstand rate hike pass throughs, which augurs well for its NIM.
The acquisition of Bank Permata of Indonesia in May 2020 provides BBL with exposure to the high growth opportunities of the Indonesian market, which is the bank’s identified main base for overseas expansion, but this also presents higher risks.
Key Metrics
AS OF 23 Feb 2023| THB mn | FY22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| PPP ROA | 1.60% | 1.65% | 1.50% | 2.49% | 2.14% |
| ROA | 0.67% | 0.65% | 0.49% | 1.13% | 1.14% |
| ROE | 5.9% | 5.6% | 3.9% | 8.5% | 8.7% |
| Equity / Assets | 11.5% | 11.4% | 11.8% | 13.3% | 13.3% |
| CET1 Ratio | 14.9% | 15.2% | 14.9% | 17.0% | 16.4% |
| Calculated NPL ratio | 3.10% | 3.20% | 3.90% | 3.40% | 3.40% |
| Provisions / Loans | 1.24% | 1.38% | 1.41% | 1.56% | 1.07% |
| Gross LDR | 84% | 82% | 84% | 88% | 86% |
CreditSights View
AS OF 09 Jun 2023Bangkok Bank’s strength has been its large corporate portfolio and high capital levels. Returns though have been lower due to thinner corporate margins. BBL completed the acquisition of Indonesia’s Bank Permata (about 12% of its loan book) in 2Q20 which reduced its CET1 ratio to 14%, but this has since been rebuilt to ~15%. While disclosure from BBL is less than other key Thai banks and both systems face an overhang of COVID relief loans, we take comfort from BBL’s strong loss buffers and China’s reopening which brightens the growth outlook for Thailand. The Thai banks also face some margin pressure but we see this as manageable given the improved growth outlook, particularly for BBL as its large corporates book is better able to withstand loan rate increases.
Recommendation Reviewed: June 09, 2023
Recommendation Changed: January 25, 2023
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
How may we help you?
Search topics about wealth insights and investments.Kasikornbank
- Sector: Financial Services
- Sub Sector: Banks
- Region: Thailand
- Bond: KBANK 5.458 28
- Indicative Yield-to-Maturity (YTM): 5.40%
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): Baa1 / BBB+ / BBB+
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Fundamental View
AS OF 27 Feb 2023- Kasikornbank (KBank; Baa1(stb)/BBB(stb)/BBB(stb)) is a sound and historically profitable bank, partly supported by its SME book.
- Margins are good as a result of its strong SME franchise, though NIMs have been steadily falling over the past 5 years as a result of strong competition and the bank’s efforts to diversify its exposure to a more balanced mix across the segments.
- Capitalisation is strong and the bank has among the highest CASA ratios in the banking sector. However, asset quality took a surprise turn for the worse in Q4 of 2022, and some uncertainty to KBank’s asset quality trajectory remains in FY23.
Business Description
AS OF 23 Feb 2023- Kbank is currently the second largest bank in Thailand. It briefly was the largest from 2018 until mid-2020, upon which Bangkok Bank completed its acquisition of Indonesia's Bank Permata and took its place.
- KBank's history can be traced back to 1945 when it was first established as Thai Farmers Bank. It was listed on the Stock Exchange of Thailand in 1976 and changed its name to Kasikornbank in 2003.
- As of end-Sep 2022, the bank's loan mix by segment consists of 35% corporate, 32% SME, 28% retail and 5% others.
- KBank is known for its strong SME franchise. Its focus industries in SME are construction, construction materials, food & beverage, and hardware.
- It partially owns a life insurance company, Muang Thai Life.
Risk & Catalysts
AS OF 27 Feb 2023- Worries over the SME segment typically finds KBank in the limelight given its SME focus. However, we expect support measures for SMEs to remain in place until the economy is back on a stable footing, given the importance of SMEs to the Thai economy.
- 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.
- However, KBank’s asset quality trajectory is uncertain as management undertook a surprise sizable balance sheet cleanup in 4Q22 that led to credit costs exceeding guidance, and will continue with further cleanup efforts in 2023.
Key Metrics
AS OF 23 Feb 2023| THB mn | FY22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| PPP ROA | 2.36% | 2.38% | 2.44% | 2.72% | 2.88% |
| ROA | 0.86% | 0.98% | 0.85% | 1.20% | 1.27% |
| ROAE | 7.3% | 8.3% | 7.0% | 9.9% | 10.6% |
| Equity / Assets | 13.4% | 13.1% | 13.4% | 13.8% | 13.2% |
| CET1 Ratio | 15.9% | 15.5% | 15.5% | 16.2% | 15.9% |
| Gross NPL ratio | 3.19% | 3.76% | 3.93% | 3.65% | 3.34% |
| Provisions / Loans | 2.11% | 1.73% | 2.05% | 1.74% | 1.75% |
| Gross LDR | 91% | 93% | 96% | 97% | 96% |
CreditSights View
AS OF 09 Jun 2023Kasikornbank is the 2nd largest bank in Thailand. We were cautious about the one third of its loan book to SMEs given their challenges which were exacerbated by COVID, but have liked the bank’s high NIM, strong capital, and ability to grow in tough times. Credit costs spiked in 4Q22 mainly from the SME book and high yield small ticket lending. Cleanups are to be undertaken throughout 2023, but progress is on track with the FY23 credit cost guidance per the bank in May, though a corporate account deterioration in 1Q23 may lead to ~10 bp of additions. Improved Thai economic growth this year would help to mitigate AQ and NIM pressure. The KBANK 28 senior is trading 20 bp wide of Thai peers which we think broadly captures the AQ related uncertainty. We thus move KBANK to M/P from U/P.
Recommendation Reviewed: June 09, 2023
Recommendation Changed: June 09, 2023
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India