Bangkok--20 Apr--SCB
The global economic turmoil shows no signs of abating and is taking its toll on the Thai economy. Despite these adverse headwinds, the Bank through its first quarter results was able to demonstrate the resilience of its business strategies and registered a net profit of Baht 5.5 billion, an increase of 39.3 % from 4Q08 but a fall of 18.3% compared to 1Q08. The main adverse impact to the Bank, as a result of the economic downturn, has been on its net interest margins, which dropped from 3.8% in 4Q08 to 3.6% in 1Q09 — mainly from the sharp fall in the interbank rates. On the other hand, the Bank was able to successfully contain expense growth, which fell by 14.1% compared to 4Q08 and was flat when compared to 1Q08. Also, as a result of its adherence to prudent underwriting standards, the quality of the loan book has been maintained with the NPL level at 4.6% — slightly better than the 5.1% recorded in 4Q08. Finally, the Bank’s Capital Adequacy Ratio stands at a high of 15.6% and provides it with the strength to ride through the current economic downturn.
Commenting on the first quarter financial results, Dr. Vichit Suraphongchai, Chairman of the Bank’s Executive Committee, noted that “these are hard times by any standard, and the banking sector as a whole will, inevitably, suffer from a weakened Thai economy. Yet, given its financial strength, this adversity provides SCB with an unprecedented opportunity to deepen relationships with selected customers and develop new capabilities as a springboard to the new post-crisis landscape. Our aim is not simply to weather the current economic storm relatively unscathed, but to emerge from it as clearly the strongest and best regarded financial services franchise in the country. It is the relentless drive to this value proposition which ultimately differentiates us from the other players in our industry”.
The Bank reported consolidated net profit of Baht 5.5 billion for the first quarter. This was up 39.3% from the 4Q08, although 18.3% behind the record profit registered in 1Q08. However, if one-time gains from investment income and loan provisions are excluded from the 1Q08 net profit, the comparable pre-tax operating profit for 1Q09 was lower by 10.6%.
The profitability level of the current quarter has been impacted by the rapidly changing liquidity and interest rate environment. In particular, the Bank was disproportionately affected by the dramatic fall-off in yields in the money market as a larger volume of net interbank deposits were earning sharply lower interest. (The yield in the interbank markets dropped from 3.8% in 1Q08, to 3.2% in 4Q08, to an average yield of only 1.7% in 1Q09). The Bank plans to address this situation through growing its loan book by lending to the blue-chip and similarly rated public sector enterprises over the coming months.
The reported results have, however, benefited from the effective and on-going drive to manage Non Interest Expenses. At Baht 8.1 billion, these expenses have been kept at the same level as reported in 1Q08, and sharply improved from the seasonally high 4Q08 expenses of Baht 9.5 billion. This significant level of expense control has been achieved without forgoing the continued expansion of the retail franchise and other strategic and transformational initiatives that are underway. The Bank expects to maintain this strong expense control discipline.
Despite the economic downturn the Bank has been able to maintain the quality of its loan book, and the level of NPLs actually fell from 5.1% (Baht 50.1 billion) at the end of 2008 to 4.6% (Baht 49.9 billion) at the end of 1Q09. In part, this reflects the robust collection and work-out capabilities that the Bank has developed and, in part, it reflects the stringent underwriting criteria that have been adopted by the Bank since early 2008 to forestall the build-up of new NPLs.
Finally, the Bank has seen its rigorous capital conservation practices culminate in the high Capital Adequacy Ratio or CAR (using the BASEL II framework). The ratio has increased from the high of 15.2% at the end of last year to 15.6% at the end of 1Q09. This robust capital strength of the Bank not only positions it to ride the economic downturn but, in addition, to capitalize on market opportunities in this likely prolonged slump.
Khun Kannikar Chalitaporn, the Bank President, noted that “although there is no end in sight for the current global turmoil, the Bank’s first quarter results attest to the soundness of the business strategies that we have adopted in response to these profound economic challenges”. She added, “we are likely to see further deterioration in the economic conditions and our focus on continuing to support selected customers and building market share gains in the blue-chip and public sector, while at the same time containing expenses, is likely to culminate in well above average profitability and strength, thus justifying a higher market premium for our franchise.
Siam Commercial Bank PCL is a leading universal bank in Thailand. It was established by Royal Charter in 1906 as the first Thai Bank and, as at March 31, 2009, had the highest market capitalization among Thai Financial Institutions (Baht 184 billion). It has the largest branch (953), exchange booth (136), and ATM (6,249) network in the country, attesting to its dominant position in the retail financial services marketplace. It has a diverse range of Corporate, SME, Private, and Retail customers nationwide, and has an asset size of Baht 1,315 Billion). Further information is available on the Bank's web site at www.scb.co.th .
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