Siam Commercial Bank's wholesale success

Arthid Nanthawithaya, who heads the wholesale banking group at Siam Commercial Bank, discusses strategy and gives some tips to his international rivals.
<div style="text-align: left;">
Siam Commercial Bank: Thailand's oldest bank
<div style="text-align: left;"> Siam Commercial Bank: Thailand's oldest bank </div>

Siam Commercial Bank is headquartered in a sprawling complex in Ratchayothin, an out-of-the-way district in Bangkok, away from the teeming traffic of Sukhumvit or the swanky shopping strip in Chidlom.

Thailand’s oldest commercial bank successfully built an enviable retail presence in the country, starting about a decade ago and, since 2007, it has focused on integrating and expanding its wholesale business. The first step was hiring Arthid Nanthawithaya, a former Standard Chartered banker, to spearhead the growth of its lending and investment banking business.

Arthid Nanthawithaya

“We wanted to transform the wholesale banking model into one that would fit Siam Commercial Bank,” he said in an interview with FinanceAsia. “We are a Thai bank, not another Standard Chartered and Citi. We are not copying a business model. We are asking ourselves, what do we want, what do we have and where do we want to be?”

Prior to him joining, the bank’s corporate lending arm was separated from its investment banking arm, then housed under SCB Securities.

Nanthawithaya wasted no time and set about integrating the two divisions upon joining. He also widened the array of products the bank could offer to its existing clients. These included corporate finance advice on mergers, acquisitions and capital markets; corporate treasury services such as cash management and trade finance; as well as foreign exchange and risk management products. His aim was to cross-sell those products to clients to improve returns.

The strategy has shown results — the bank’s fee income has provided a fillip to its earnings. Investors have shown faith in the bank’s overall strategy, as reflected by the way its stock has traded. While SCB is the third-biggest bank in Thailand by assets, it has a market capitalisation of Bt464 billion ($14 billion), the largest among the Thai banks, overtaking Bangkok Bank, which has a larger asset base. It also trades at a higher price-to-book ratio compared to its peers.

During the first quarter, it posted a net profit of Bt10.3 billion, a rise of about 30% year-on-year, excluding the one-off Bt5 billion gain booked during the first quarter of 2011. Analysts expect the bank to continue to post strong earnings growth, driven by loan growth and healthy non-interest income.

Some wonder if SCB is lending too aggressively and whether it could face an increase in non-performing loans down the road, but Nanthawithaya maintains that the bank’s increased corporate lending has not come at the cost of its credit policy. Its strategy is to focus on large clients it knows well and to carefully add on exposure to new customers.

“We are not expanding our loan book at expense of credit policy,” said Nanthawithaya. “We fully believe in the relationship and quality of our customer before we make this jump.”

Thailand’s domestic banks have long dominated the banking landscape. In contrast, foreign banks have struggled to make money and face restrictions, such as limits on the number of bank branches they can open.

A few have decided to leave the market. In January, HSBC sold its Thai retail banking business to Bank of Ayudhya, as part of its plan to exit businesses that are not profitable enough. Late last year, there were reports that Credit Agricole was withdrawing its corporate and investment banking operations from Thailand and according to a Bangkok-based banker, the French bank has been unwinding its counterparty positions in Thailand. A Credit Agricole spokesperson acknowledged the pull-back.

All this might lead one to conclude that Thailand is a difficult place for foreign banks to make money. Nanthawithaya disagrees and suggests that the foreign banks have set overly aggressive targets and their move to cut back on lending in the region has hurt them.

“It seems like the foreign banks get stuck in an efficiency game. They set the bar too high — whether it is in terms of return-on-equity or return-on-capital. Too often, they compare it to the returns seen on proprietary trade done in the US or Europe,” he said.

“Siam Commercial Bank’s return-on-equity is about 18%. When we look at our lending business, the return is lower than what is seen in the US or Europe. But if you can capture all the products in the value chain, the return becomes acceptable. For foreign banks, when they decide not to extend their balance sheet, they start losing the other products,” he added.

The retreat of European lenders from the region has thrown up opportunities for Asia’s lenders. As the cost of capital has risen, banks are more cautious about lending at cutthroat rates and as a result, loan pricing has returned.

Siam Commercial Bank was one of the few Thai banks to venture into the US dollar bond market. In February, it issued a $600 million five-and-a half-year bond, arranged by Barclays and Citi. But its dollar lending strategy remains heavily focused on its Thai clients that are expanding offshore.

Perhaps the most visible example of this is PTT Exploration & Energy, which recently made a revised $1.9 billion bid for UK-listed Cove Energy. However, less headline-grabbing are the scores of Thai companies that are expanding closer to home — in Laos, Cambodia, China and Indonesia. Here, SCB is keen to play an active role, helping its Thai clients scout for assets or sell assets.

However, unlike its market share in baht lending, which the bank has to defend, SCB will only lend in US dollars if there is sufficient cushion. “We are not a foreign bank,” said Nanthawithaya. “We are not running a big gap, borrowing short and lending long in US dollars. We have to make sure we have long-term US dollar funding to cover our loan pipeline, but we are not trying to over-extend beyond our capability.”


A version of this story first appeared in the June issue of FinanceAsia magazine

¬ Haymarket Media Limited. All rights reserved.