Bank seeks sustainable portfolios with high yields, low risks
Siam Commercial Bank is building up its loan portfolios in selected segments where it foresees healthy yields with acceptable risks, while reducing concentration of other portfolios.
Since the political unrest and the economic slowdown, SCB, which used to pursue loan growth aggressively in the retail sector, especially auto loans, as well as lending to small and medium-sized enterprises, has slowed down in some areas.
Senior executive vice president Yol Phokasub, who heads SCB’s retail and business banking groups, said the bank now wanted to be a leader in some segments such as housing loans, as it has expertise in this category.
“We will move forward in what can make the bank strong and downsize where we are at a disadvantage. We used be the bank with the largest number of ATMs and branches, but today we are not, because we now know that if those ATMs and branches are in weak locations, they will be a cost burden for us,” he said.
SCB entered the auto-loan business five years ago. As this segment was new to SCB, to build a strong portfolio with low risk, it financed only new cars at the beginning. It gradually expanded to used cars after its new-car loan portfolio became more stable.
Used-car loans now account for 40 per cent. However, Yol acknowledged that SCB as well as other hire-purchase lenders were unable to avoid the effects on this segment from the previous elected government’s first-car tax-incentive scheme.
He said the auto-loan portfolio at SCB had reached a sizeable Bt180 billion.
The bank will not chase new-car loans as aggressively before but is attempting to mix the portfolio with used-car loans and auto refinance in line with the new strategy.
“We will still finance new cars, but with our selective growth strategy, [we note that] pickups are generating higher [returns] than passenger cars,” he said.
He said the lower demand for new cars after the government’s tax scheme ended had created a big change in the hire-purchase business because captive leasing firms related to auto manufacturers had to shore up auto sales through the dealerships by easing financing conditions for buyers.
“When the auto market is smaller, the margin from providing [loans for] new cars is narrow, so banks including SCB have to selective. This is one reason we are unlikely to grow in auto loans as before,” he said.
Under the selective strategy, SCB will try for a 50:50 ratio of new-car loans versus used cars/refinance, from 60:40 currently, Yol said. In fact, the bank hopes to be a market leader in auto refinance within a few years.
Unsecured loans and credit cards should be sizeable portfolios as well, at Bt50 billion and Bt40 billion respectively.
The personal and used-car loan segments both carry some risk along with relatively high yields, and Yol noted that the non-performing-loan rate in SCB’s retail banking was 2.2-2.7 per cent.
Retail banking is not expected to grow as sharply as before because of high household debt, while SMEs will return to growth as they benefit from state infrastructure investment. Therefore, new SME loans in the next few years should be similar to those in retail banking at Bt40 billion per year. New SME loans currently account for Bt20 billion to Bt30 billion annually.