Bangkok--22 Jul--SCB
SCB released its 2Q 2009 results, reporting net profit of Baht 5.2 Billion, which was 5.6% below the previous quarter profit of Baht 5.5 billion and 10% below the profit of Baht 5.8 billion in 2Q08. This resilient financial performance, in the midst of one of the steepest economic contractions in the country’s history, attests to both the fundamental soundness of the SCB operating model and early signs that the worst may be over in terms of the economic downturn. The positive drivers for the quarterly results were the modest revival of loan growth (up 0.5% from the previous quarter and up 2.8% from the previous year), robust fee income growth (up 7.4% from the previous quarter and up 9.4% year on year), and stable loan quality (NPLs virtually unchanged from the previous quarter and the previous year). On the other hand, quarterly performance was held back by reduced net interest margins, and higher than expected operating expenses due to a few one-time adjustments in the quarter.
Commenting on the results, Dr. Vichit Suraphongchai, Chairman of the Bank’s Executive Committee noted, “while we are not immune from the impact of the sharp economic contraction and the pressures arising from record low interest rates, our results continue to reflect the inherent soundness of the strategies that we are pursuing, the robustness of our operating model, and the competitive edge that we have gained in the marketplace as a result of our ongoing transformational change program”. He added, “the results also provide a glimmer of hope that the worst may well be over in terms of the economic contraction, and a modest recovery may well be underway”.
Loans at Baht 907 Billion were up slightly, from Baht 902 Billion at the end of 1Q09 (0.5% qoq), and Baht 882 Billion for the corresponding period in 2008 (2.8% yoy). Most of the net increase in lending was from new lending to blue-chip companies and the public, as well as from the steady growth of the home mortgages portfolio on the retail side. The Bank reported that lending in the second half is typically higher on the back of seasonal working capital needs, leading to its expectation that loan growth for 2009 will be within the revised target of 3-5% that it has set for the year.
Fee Income growth was solid for the quarter; up 7.4% qoq and 9.4% yoy. The bulk of fee income originates from bancassurance, card, and mutual fund products on the retail side, and these product volumes have continued to strengthen in the quarter.
Loan quality was stable at the end of the quarter and the NPL level of 4.7% was unchanged from the end of the previous quarter, and significantly lower than the 5.3% level at June 30, 2008. Further, the absolute amount of NPLs remained virtually unchanged at Baht 49.8 billion, even as the NPL coverage ratio jumped from 81.7% in the previous quarter to 84% at the end of the current quarter.
The downward pressure was mainly from net interest margins which suffered from sharp reductions in lending rates in the second quarter — as part of the efforts by the major banks in Thailand to stimulate new investment and reduce the interest burden of existing borrowers. As a result of these lending rate cuts and the increased volume of interbank assets, NIM on earning assets dropped from a high of 3.9% in 2Q08 to 3.4% in the current quarter (and even lower than the 3.6% of the preceding quarter).
In addition, although the Bank’s operating expenses have been carefully contained since the start of this recession last year, the Bank’s operating expenses for the current quarter increased 10.9% qoq and 8.5% yoy. In the main this was due to a few one-time factors in this quarter. Stripping out these one time charges, the operating expense increase would have been a more modest 3.4% qoq.
Commenting on the second quarter results, Bank president Khun Kannikar Chalitaporn noted that “our fundamentals have never been stronger and the appropriateness of our direction never clearer. We have a solid capital base, a market leading capacity to generate fee income continuously, an efficient operating model, and the current financial results attest to our capacity to withstand the economic downturn. More importantly, we are positioning for the recovery with stronger products and better capabilities, anchoring on even stronger customer relationships and deeper employee engagement. Ultimately, when all the current turmoil is over, it is this positioning for the future that will matter most in generating continued for all our stakeholders value”.
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 June 30, 2009, had the highest market capitalization among Thai Financial Institutions (Baht 246 billion). It has the largest branch (959), exchange booth (125), and ATM (6,503) 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 1,299 Billion — the third highest in the country at June 30, 2009. Further information is available on the Bank's web site at www.scb.co.th.
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