Bangkok--20 Oct--Siam Commercial Bank
Siam Commercial Bank PCL reported (unreviewed) consolidated net profit of Baht 9,018 million for the third quarter of 2015 – a 32.0% decrease year-on-year. This year-on-year drop in net profit was attributed by the Bank to the substantially higher additional provisions required for two large corporate customers (Sahaviriya Steel Industries PCL (SSI) and its UK subsidiary that is currently in receivership (SSI-UK)) who were classified as NPLs in the third quarter of 2015, as well as the lower net interest income from the reversal of accrued interest income for these two customers. This drop in profitability was partially offset by the large gains from the sales of investments from the Bank's equity portfolio. Excluding the impact from SSI and SSI-UK, net interest income (NII) was relatively flat year-on-year while the non-NII increased at a moderate rate.
Commenting on the results, Arthid Nanthawithaya, Deputy Chairman of the Executive Committee and CEO of the Bank, noted that "the sharp decrease in net profits was disappointing but we believe that it is prudent for us to provide for the changed economic circumstances of SSI on a very conservative basis and then move on. The unprecedented scale and depth of the sharp global downturn in the steel industry would have been difficult to anticipate at the time SSI acquired its UK based steel plant. Looking ahead, the Board firmly believes that the current new initiatives that are underway to transform our Bank's franchise will reinvigorate our future profitability and demonstrate the sustainability of our economic returns. To this end, the management and I are firmly pledged.
Net interest income decreased by 3.7%, year-on-year, in the current quarter. This decrease in interest income was mainly from the reversal of accrued interest income for SSI and SSI-UK as well as the lower interest income from the interbank and money market loans. This decline in income was partly offset by lower interest expenses on deposits, consistent with both the market trend and the Bank's strategy to proactively reduce its cost of deposits relative to its peer group. Excluding the impact from SSI above, the net interest income would have been flat year-on-year.
Non-interest income increased by 75.3%, year-on-year, in the current quarter, mainly due to the large investment gains. To mitigate the impact of the substantial additional provisions made in the current quarter, the Bank recorded net investment gain of Baht 7,700 million from sales of equities in its investment portfolio. Excluding these large gains from the sale of equity investments, non-interest income would have increased modestly by 5.1%, year-on-year, in the current quarter.
Earlier this year, the Bank revised upwards its loan loss provisioning guidance for the second half of 2015 at between 100-110 bps of total loans outstanding, mainly on the expectation that a slowing Thai economy amid global economic volatility was likely to lead to higher than anticipated new NPLs. However, in the quarter following the abrupt closure of SSI-UK's steel plant and the consequent appointment of an official receiver, not only did this large subsidiary of SSI turn NPL but, in addition, the value of its collateral was marked down to zero. Also, as a consequence default was called on SSI and the value of its collateral reduced. Given this deterioration, the Bank decided to set aside substantial additional provisions of Baht 11 billion to cover both SSI and SSI-UK, over and above the normal loan provision of Baht 5 Billion previously guided for the current quarter. As a result, total provisions set aside in this quarter rose to Baht 16 billion compared to Baht 3.222 billion in the third quarter of 2014, an increase of almost 400%.
As a result of the SSI being classed as an NPL, the ratio of NPL-to-loans rose to 3.02% at the end of September 2015, from 2.11% at the end of September 2014, and 2.22% at the end of June 2015. As loans to SSI-UK subsidiary has been fully provided assuming no collateral value, the Bank wrote-off this loan at the end of September. Concurrently, the coverage level for NPLs, excluding collateral, decreased from 140.4% at the end of September 2014, and 134.8% at the end of June 2015 to 100.8% at the end of September 2015.
The Bank's president, Yol Phokasub, adds that "while the third quarter financial results were a clearly set-back, our management and employees remain determined to demonstrate that the Bank will continue to deliver strong competitive performance in the quarters ahead. This will be accomplished by both the health of the Bank's existing franchise and by the medium-term boost from the new transformative growth initiatives. Further, the Bank is confident that the remaining large loans in its corporate segment remain fundamentally sound. As a result we expect to achieve to the stated return on equity targets in future through delivering a superior value proposition in all customer segments from the efforts of our deeply engaged employees."
Siam Commercial Bank PCL is one of Thailand's leading universal banks. Established by Royal Charter in 1906 as the first Thai bank, it has the highest market capitalization among Thai financial institutions as of September 30, 2015 (Baht 455.6 billion). It offers the nation's large network of branches (1,203), exchange booths (104), and ATMs (10,044), attesting to its dominant position in the retail financial services marketplace. Its clientele includes a diverse range of corporate, SME, private, and retail customers nationwide. The Bank's total assets stood at Baht 2,762 billion as at September 30, 2015. Further information is available from the Bank's website at www.scb.co.th.