Bangkok--7 Sep--Fitch Ratings
Fitch Ratings (Thailand) has assigned SCB Securities Company Limited (SCBS) National Long- and Short-Term ratings of 'A+(tha)' and 'F1+(tha)', respectively. The Outlook is Stable.
SCBS's ratings are based on the full ownership and support from Siam Commercial Bank Public Company Limited (SCB; 'AA(tha)'/Stable/'F1+(tha)'), the country's third-largest commercial bank with the strongest domestic retail banking network, as well as the former's high level of integration with the banking group. SCBS is strategically aligned with the parent bank. Apart from management ties and close name association, SCBS's key operational functions including risk management, human resources, accounting & finance, audit & compliance and information technology have been centralised at SCB since 2009.
SCBS's core business is brokerage, which accounted for 77% of revenue in H111. Speculative proprietary trading was suspended after it reported a large mark-to-market loss during the 2008 financial crisis, although it retained low-risk arbitrage trading (15% of equity at end-June 2011). SCBS's strategy is to focus on building a stronger brokerage franchise and structured financial products, such as selling equity-linked notes to high net-worth individuals by leveraging off the banking group's extensive distribution network.
SCBS's profitability has sharply improved from its trough in 2008. Net profit rose 86% yoy in 2010 and 188% yoy in H111, backed by strong brokerage volumes. The strong H111 results were also attributed to strong underwriting income. Returns on average assets (ROA) and equity (ROE) improved to 8.6% and 13.2%, respectively, in H111 (2010 ROA: 5.8%; 2010 ROE: 8.6%). However, Fitch notes that the full liberalisation of brokerage commission fee from 2012 onwards could negatively affect SCBS's market share and profitability prospects.
SCBS had legacy non-performing securities brokerage receivables of THB273m at end-H111 (12% of total brokerage receivables), stemming from the 1997 Asian crisis, but which are fully provisioned for. SCBS relies on equity funding and has no borrowings, while liquidity is supported by a strong cash balance of THB1.5bn at end-June 2011 and a liquidity support line of up to THB2bn provided by the parent. SCBS is well-capitalised with equity to asset of 52.9% and net capital ratio of 114% at end-H111, substantially higher than the regulatory requirement of 7%.
The Stable Outlook is based on the parent bank's Outlook. Any change in SCB's shareholding and its support policy on SCBS could affect the two-notch rating differential between both entities. Also, any change in SCB's ratings could affect SCBS's ratings.
SCBS was established in 1995 as a wholly-owned securities arm of SCB. SCBS is ranked 15th out of Thailand's 41 securities companies with a market share of 3% in H111.