SCB refocuses on retail lending in bid to manage risk

Siam Commercial Bank plans to make retail banking its biggest portfolio as it prepares for new global regulatory standards on capital adequacy and the impact of the euro-zone crisis.

SCB president Kanikar Chalitaporn said the bank was taking current uncertainties very seriously as it works to manage risk while ensuring it can comply with the upcoming Basel III regulatory standard and maintain profitability.

She explained that wholesale customers carried a higher risk weight than retail customers. When the bank makes large loans to wholesale customers, the corresponding risk influences the Tier 1 capital ratio, and Basel III, which will be implemented next year, requires commercial banks to have a Tier 1 ratio of 6 per cent, up from 4.5 per cent currently.

The bank has no need to increase capital because its Tier 1 ratio is 10.68 per cent, and its capital is sufficient to cover loan demand if it focuses more on retail customers. 

“We have reset our portfolios in the past 18 months by gradually reducing wholesale loans and increasing retail loans, as … their credit line is smaller,” meaning lower risk, she said.

Oranuch Apisaksirikul, chief executive officer of Tisco Financial Group, shared the same view that risk weight of corporate customers was more than that of retail customers. However, the group also places weight on return on investment. If the return exceeds the capital ratio, Tisco prefers lending to corporate customers.

Tisco is focusing on lending to corporations and small and medium-sized enterprises to expand its customer base from the retail segment. It has a Tier 1 ratio of 9 per cent and has no plan to increase capital based on annual loan growth of 12-15 per cent. However, if annual loan growth gets into the range of 20-30 per cent in the next few years, the group will consider increasing capital. 

At SCB, wholesale loans account for 40 per cent of the total, the same as retail loans, with the remaining 20 per cent SME loans. But the proportion of retail loans is expected to become the largest at 45 per cent soon, while wholesale banking will shift to the role of fee-income generator.

 

SME loans up

In the first half of this year, SCB’s loan growth was 20.9 per cent, higher than the 14.4 per cent seen by the overall banking industry. Its growth was primarily in the retail and SME portfolios, while wholesale loans grew by 10 per cent. 

Kannikar said the bank believed it was on the right track, especially in light of the euro-zone crisis, which might affect corporate customers and exporters more than retail customers.

The bank expects Thailand to feel the full impact of the euro crunch next year, so lending in the overall industry will grow more slowly than this year. SCB expects its loan growth to drop to around 10-12 per cent in 2013 after recording about 20-per-cent annual growth for three consecutive years.

Meanwhile, as implementation of the Asean Economic Community draws closer, Kannikar said the bank would focus more on Myanmar, because trade flow into that country from China, India and Europe will increase as it opens up, while Thailand will also gain from the cross-border trade.

SCB has already rented a building in Yangon to set up a representative office. 

“We are willing to invest there even though Myanmar will need a long time to see the effects of its opening. Our goal in Myanmar is to set up SCB branches with world-class financial services,” she said.