Siam Commercial Bank’s restructuring highlights Thai banks’ need for complexity: analysts

The new entity aims to become a regional fintech conglomerate by 2025.

The next few years will be a survival game for Thailand’s traditional banks, highlighted by one of the country’s largest banks reorganising to become a more financial technology-focused firm—reflecting the need for local banks to become more complex entities in order to keep up with the competition.

Siam Commercial Bank’s planned reorganization reflects a wider trend amongst Thai banks that sees them seek to become more complex financial groups in order to push up profits and retail competitiveness, said Fitch Ratings.

On 22 September, the bank unveiled plans to set up a holding company, SCBX, that will own the group’s operating entities, including SCB. The group aims to complete the transaction by the second quarter of 2022 after securing necessary approvals. The new entity aims to become a regional financial technology conglomerate by 2025 and build a 200 million strong customer base.

Both Fitch Ratings and Moody’s Investors Service expect the reorganisation to have little impact on SCB’s credit. However, Moody’s did warn of potential financial contagion from SCBX's non-banking businesses, although the risk is low, the ratings agency added.

Instead, Fitch sees the phenomena as part of a bigger trend of Thai banks being pushed to transform operations due to a challenging operating environment for traditional bank businesses.

Traditional banks in Thailand have long grappled with a prolonged long-growth and low-interest-rate environment that inhibits their growth opportunities. This has led to several transformative mergers and acquisitions in the local banking sector during the past two years, the ratings agency added.

“SCB’s planned reorganisation is taking place amidst greater investment in fintech via standalone subsidiaries and in partnership with key non-bank players,” the Fitch noted in a report.

Indeed, SCB specifically stated in its reorganisation announcement that it aims to become a regional financial technology group spanning a variety of financial businesses and platforms.

“In 2025, the arrival of decentralised finance technology, the expansion and penetration of global platforms into the financial business, post-COVID 19 consumer behaviour, and dramatic changes to regulations will reshape business models, forcing banks into playing roles as intermediaries and making traditional banking fees less and less important. Such conventional roles will no longer satisfy the emerging needs and expectations of consumers,” said Siam Commercial Bank CEO and Chairman of the Executive Committee Arthid Nanthawithaya in the reorganisation announcement. 

He added that in four years’ time, consumers’ reliance on banks will wane, which will unavoidably have a negative impact on the future value proposition for traditional banking investors.

“SCB must no longer limit itself to the traditional banking business, but rather take advantage of its financial strength to accelerate its aggressive expansion into other types of financial businesses that the market demands, build technological capabilities, and manage a large technology platform to keep pace with global players,” Nanthawithaya added, noting that it is crucial to quickly enter the “new arena of competition” in order to survive in the next three to five years.

For their part, Fitch welcomed the proposed restructuring, noting that it will likely improve the central bank’s ability to regulate SCB, as non-traditional and non-financial subsidiaries will be transferred to the holding company. 

The ratings agency added that SCB group’s new format may be replicated at other large financial institutions as their organisational structures become more complex.