RUNNING an investment-banking operation today requires more of a focus on fee income than on lending, which for Siam Commercial Bank means having a proactive approach that is one step ahead of business activities in order to achieve success.
SCB has changed its mindset in regard to investment banking – part of wholesale banking – in the past few years, shunning pricing and using fewer balance sheets so that capital can be retained, Arthid Nanthawithaya, senior executive vice president and head of wholesale banking group, said last week.
He shared his group’s direction for winning wholesale-banking deals, which is unlike the path it follows for SME (small and medium-sized enterprise) banking and retail – or individual – banking, both of which grow from lending as the priority.
Lending is the last piece of the jigsaw for wholesale banking, he said.
While it helps get a wholesale job completed, SCB can seek fee income from lending by being mandated as lead arranger in syndicated loans, which helps reduce the effect on the bank’s balance sheet, he explained.
Income from lending forms less than 20 per cent of the wholesale banking group’s overall income.
Wholesale banking at SCB comprises investment banking, capital market and financial market in what the bank terms its three “strategic clusters”.
The financial-market cluster leads to fee income from providing advisory, trade finance and foreign-exchange services.
The bank also has three more clusters to support lending, with one team covering conglomerates and large companies; another covering mid-sized corporates, which have frequent transactions in the areas of trade finance and cash management; and a third covering corporates that only require loans.
The main goal of wholesale banking is attracting fee income from providing financial-advisory services to large and mid-sized corporates that want to engage in merger and acquisition activity or raise funds from the capital market, Arthid said.
Fee income that flows from the striking of such deals is from cash management, trade finance and foreign exchange. SCB investment bankers, therefore, have to quickly work out what a wholesale customer is thinking and then offer ideas that match the client’s aspirations, he said.
“We have to set a target in relation to what has not yet happened, and then be proactive in building something from there. If we wait for a business activity to happen and then go after the deal, it means we are not achieving added value or creating benefit for the customer,” he said, adding that SCB had won many deals as a result of offering an idea to corporate clients.
“We will be the first Thai bank to mandate a convertible bond worth more than Bt10 billion to a Thai corporate for offering to foreign investors. The deal, which will happen by the end of the year, represents a value-added offering for SCB,” said the executive.
The bank is expanding its business with mid-sized corporates as well as with larger companies, as the former are often able to make quicker decisions, he said.
Meanwhile, the picture for corporate investment has become clearer since the appointment of new members of the Board of Investment and the unblocking of Ror Ngor 4 investment permits, developments that are expected to boost wholesale-banking income. The supply chain for upcoming public infrastructure projects is a major focus in building SCB’s fee income, Arthid said.
The bank’s fee-income growth this year will be 20 per cent lower than last year’s level, because the export slowdown in the first half influenced income from trade finance and foreign exchange.
The ratio of fee income to interest income is currently 50:50, against 35:65 for the past six years. This is seen as a suitable ratio for SCB, he said, pointing out that foreign banks have a 70:30 ratio for fee income versus interest income.
At present, outstanding wholesale-banking loans at the bank total Bt640 billion, out of an overall loan portfolio of Bt1.68 trillion.
Arthid believes the bank’s fee income still lags too far behind lending. He wants to see it account for 25-30 per cent of lending in the near future.