SCB X profits weighed by high credit costs, weakening asset quality

The bank will benefit from the interest rate hike, but peak by Q4 and gradually decline after.

High credit costs and weakening asset quality will drag on Siam Commercial Bank X’s (SCB X) profits.

The Thailand-based bank saw its net profit fall 6% year-on-year in Q3, to THB9.7b. This is also 19% lower compared to its Q2 profit. 

The results were in line with expectations, says UOB Kay Hian analyst Kwanchai Atiphophai. Key drags include softer non-interest income, and high provision expenses and credit costs. 

Management has also guided that net interest margin (NIM) will peak in Q4 and gradually decline due to funding cost catching up. 

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UOB Kay Hian expects net interest margin to benefit from the 25-basis point (bp) rate hike. 

“We revise SCB’s 2023-25 earnings forecast lower by 3.1%/4.3%/2.5% due to the 
weakening asset quality from an uneven economic recovery and NIM outlook peaking,” Atiphiphai wrote in UOB Kay Hian’s recent report on SCB X.

Credit costs to exceed 2023 target
UOB Kay Hian also expects SCB X to exceed its credit costs target.

SCB has set aside provision expenses of THB12.2b in Q3– up 58% year-on-year, and 1% from the previous quarter.

The company’s credit cost also remained high at 201bp in Q3.

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“Although management revealed that the company has already solved the collection malfunction at its subsidiary (CardX), SCB still needs to be prudent and build a precautionary buffer for an uneven economic recovery and geopolitical risks,” Atiphophai said.

“In our view, we believe SCB’s credit cost would remain high as the bank is likely to 
increase its loan loss coverage (LLC) ratio from the current level of 167%, as there are still 
many headwinds that could trigger a deterioration in asset quality in the future,” Atiphophai added.