SIAM COMMERCIAL BANK PCL. 1Q17 Financial Results Analyst Meeting Presentation April 21 st, 2017 IMPORTANT DISCLAIMER: Information contained in this document has been prepared from several sources and the Bank does not confirm the accuracy and completeness of suc h data, particularly where the data is sourced from outside the Bank. In addition, any forward looking statements are subject to change as a result of market conditions and the final result may be different to that indicated. The Bank makes no representation or warranty of any type whatsoever on the accuracy or completion of the information contained herein. Page 1 / 24
Agenda Page 1. Review of 1Q17 Results 3-15 2. Economic Indicators and 2017 Strategy & Outlook 17-24 Page 2 / 24
Solid financial results despite sluggish economic recovery 1Q17 Results Consolidated PROFITABILITY INCOME/ COST LOANS/ ASSET QUALITY (Percentage) 2016 Actual 2017 Targets 1Q17 Actual ROE 14.8% N.A. 14.0% ROA 1.67% N.A. 1.63% Net interest margin 3.27% 3.1-3.3% 3.21% Non-NII growth -3.9% 3-4% 33.2% Cost/Income ratio 38.7% 40-43% 40.6% Total loan growth (yoy) 5.8% 4-6% 6.2% NPLs (gross) 2.67% 3.0% 2.70% Coverage ratio 134.3% ~130% 133.4% 1Q17 Results (Highlights) 1Q17 net profit was Baht 11.9 billion, a 13.0% yoy increase driven by both higher NII and non-nii. NIM was at 3.21%, in line with the annual target of 3.1-3.3%. Non-NII rose significantly by 33.2% yoy due mainly to stronger net fee and service income from an increase in mutual fund fees and bancassurance fees as well as a sharp drop in net insurance claims. NPLs increased slightly but coverage ratio remained high. Exclude the large gains from the sale of equity investments in 3Q15. If included, 2016 Non-NII would decline by 17.5% yoy. Page 3 / 24
Net profit was driven by solid growth in NII and net fee income 1Q17 Net Profit The yoy increase in 1Q17 net profit (+13.0% yoy) was due mainly to higher NII, higher net fee income, and lower net insurance claims. Operating profit rose by 8.9% yoy for the same reasons. Despite these positive factors, the 6.3% qoq decline in net profit was driven by higher provisions in 1Q17 after a low level in the prior quarter. Net Profit (Baht billion) +13.0% yoy -6.3% qoq ROE (Percentage) +0.6% yoy -1.4% qoq 10.5 12.8 11.5 12.7 11.9 16.0% 15.4% 13.4% 14.3% 14.0% Operating profit (Baht billion) 18.1 24.4 21.4 17.8 +8.9% yoy +11.0% qoq 19.7 ROA (Percentage) 1.5% 1.8% 1.7% 1.8% +0.1% yoy -0.2% qoq 1.6% Net profit before impairment provisions, non-controlling interest, and taxes. Page 4 / 24
Steady loan growth led to higher NII yoy NII The 4.1% yoy increase in net interest income was mainly driven by loan growth of 6.2% yoy and higher interest income from interbank. However, net interest income fell by 1.1% qoq due to a decrease in loan yields, fewer calendar days and lower interest income on investments. Net Interest Income (Baht billion) 22.8 +4.1% yoy -1.1% qoq 22.6 Yield of Earning Assets, NIM and Cost of Funds (Percentage) Yield on Earning Assets 4.55% 4.51% 4.55% 4.57% 4.39% 21.7 21.8 22.2 Net Interest Margin Cost of Funds 3.24% 3.24% 3.33% 3.33% 3.21% 1.61% 1.58% 1.54% 1.56% 1.48% Yield on loans Cost of Deposits 5.71% 5.63% 5.55% 5.59% 5.44% 1.58% 1.52% 1.47% 1.49% 1.40% Page 5 / 24
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F Given continuously lackluster economic momentum, loan demand remains moderate in 2017 Credit Cycle Loan Growth (%yoy) SCB s acquisition of SCB Leasing and market share gains in SME segment Global financial crisis; SCB tightened credit underwriting standards Outcome of SCB s market share growth strategies in mortgage, auto and SME segment Sharply lower loan growth as a result of the economic slowdown 30.0% SCB Loan Growth 20.0% Expected Bank/ sector loan growth 10.0% 0.0% Banking Sector Loan Growth 5.8% 2.0% 4-6% 3-4% 2/ -10.0% In 2006, the Bank increased its holding in SCB Leasing (then Thai Panich Leasing PCL) from 37.6% to 95.5%. 2/ SCB EIC s estimation Source: Bank of Thailand s website (for sector loans growth) Page 6 / 24
Loan volume grew in all segments except for SME Loan Growth The 1Q17 loan growth of 6.2% yoy was contributed by all segments except for SME. On a qoq basis, loans volume grew slightly by 0.7% which was mainly driven by corporate and auto loans. Loans (Baht billion) 1,839 1,862 +6.2% yoy +0.7% qoq 1,912 1,939 1,952 Corporate Loans (Baht billion) SME Loans (Baht billion) Market Share Top 3 2/ +12.4% yoy +1.9% qoq Market Share #4 2/ -0.5% yoy -1.2% qoq 703 712 726 362 364 363 365 646 654 360 Loans Breakdown as at March 31 st, 2017 Corporate 37.2% (35.1%) Retail 44.4% (45.2%) Mortgage 31.2% ( 31.7%) Retail Loans (Baht billion) 831 844 846 862 866 80 81 79 86 85 169 167 165 169 172 Market Share #1 Retail +4.2% yoy +0.4% qoq Others 3/ +6.7% yoy Auto 4/ +1.9% yoy (market share #3) -0.9% qoq +1.9% qoq SME 18.5% (19.7%) Auto 8.8% (9.2%) Others 4.4% (4.3%) 582 596 602 607 609 Mortgage 4 +4.6% yoy (market share #1) 5/ +0.2% qoq ( ) : Loan breakdown as at March 31 st, 2016 Includes loans classified as NPLs 2/ Market share as of December 2016 3/ Others include mainly credit cards and unsecured consumer loans 4/ Market share among the top 5 auto loan lenders, excluding captive finance companies, as of December 2016 5/ Market share excludes the Government Housing Bank Page 7 / 24
Overall new NPL formation declined qoq Asset Quality Special mention loans stood at Baht 43.7 billion at the end of March 2017, up significantly by 43.7% yoy, mainly as a result of the reclassification from NPL to special mention loan of one large corporate customer in 4Q16. However, special mention loans decreased by 2.0% qoq. In 1Q17, new NPL formation was at 0.41%, declined from 0.52% in 4Q16, largely driven by lower new NPLs from all segments except for housing loans that had seen an increase in new NPL formation largely among self-employed borrowers. Special Mention (Baht billion) +43.7% yoy -2.0% qoq Total Loans NPL% 2.64% 2.77% 2.85% 2.67% 2.70% New NPL% 0.41% 0.40% 0.50% 0.52% 0.41% 30.4 33.7 36.0 44.6 43.7 Corporate SME NPL% 3.39% 3.29% 3.36% 2.29% 2.27% New NPL% 0.05% 0.00% 0.28% 0.18% 0.04% NPL% 4.96% 5.08% 5.21% 6.37% 6.46% New NPL% 0.86% 0.60% 0.70% 1.08% 0.60% Mortgage NPL% 1.85% 2.15% 2.42% 2.25% 2.62% New NPL% 0.51% 0.65% 0.68% 0.61% 0.76% Auto Loans NPL% 1.86% 1.85% 1.86% 1.83% 1.63% New NPL% 0.41% 0.43% 0.40% 0.50% 0.41% Shows change vs 4Q15. Green / Red fonts indicate decrease / increase in new NPL formation as a % to total loans from the previous period. Page 8 / 24
NPL ratio rose slightly but coverage ratio remained high Asset Quality NPL ratio stood at 2.70% in 1Q17, increased from 2.67% in 4Q16 due mainly to NPLs from housing loans for selfemployed borrowers. Meanwhile, NPL coverage ratio marginally declined to 133.4% at the end of March 2017 but remained above the Bank s target of 130%. In 1Q17, loan loss provisions amounted to Baht 5.0 billion, equivalent to credit cost of 103 bps. The qoq increase was due to a low loan loss provisions in 4Q16 as the Bank already set aside additional provisions in 2Q16 and 3Q16. Non-Performing Loans, Gross NPL Ratio, and Coverage Ratio (Baht billion, %) Coverage Ratio 122.8% 130.0% 128.9% 134.3% 133.4% 2.64% 2.77% 2.85% 2.67% 2.70% Provisions (Consolidated, Baht billion) 8.5 Credit cost (bps) 5.0 7.0 2.0-0.0% yoy +151.3% qoq 5.0 109 184 149 41 103 Gross NPL % 55.1 57.1 61.4 57.6 59.6 Non- Performing Loans +8.2% yoy +3.6% qoq Restructured Loans (Consolidated, Baht billion) 35.2 34.4 30.9 40.5 39.5 +12.0% yoy -2.6% qoq Page 9 / 24
Higher non-nii mainly driven by a spike in net insurance premium income and, to some extent, larger net fee income Non-NII Non-interest income increased considerably by 33.2% yoy, primarily a result of a spike in net insurance premium income following the additional policy reserves SCB Life set aside in 1Q16 while net fee income continued to grow from prior year with higher mutual fund fees and bancassurance fees. On a qoq basis, non-nii also increased by 8.4% given an increase in net fee income, net insurance premium income despite a decline in net trading and FX income. Non-Interest Income (Baht billion) 15.1 +33.2% yoy +8.4% qoq 8.0 1.7 1.4 6.6 12.0 1.7 9.8 1.9 10.6 1.7 Gain on investments Other income Gain on trading and FX -75.8% yoy +80.7% qoq -30.9% yoy +17.4% qoq +0.6% yoy -13.5% qoq 7.0 6.0 7.6 7.1 7.3 Net fee income +3.6% yoy +2.2% qoq -1.9 1.2 0.4 1.2 Net insurance premium N.M. +213.8% qoq 27% 41% 35% 30% 32% Non-NII % to total income 17% 34% 26% 23% 26% Net fee and net insurance premium % to total income Other income includes income from equity interest in affiliated companies, dividend income, and other operating income. Green / Red fonts indicate increase / decrease in Non-NII % to total income and Net fee and net insurance premium % to total income from the previous period. N.M. = Not meaningful Page 10 / 24
Net fee income growth in 1Q17 came from mutual fund and bancassurance businesses Fee Income Net fee income increased by 3.6% yoy mainly from mutual fund fees and bancassurance fees (from the sale of thirdparty bancassurance products). Net Fee Income by Segment (Percentage) Net Fee Income Breakdown (Percentage) 25% 25% 21% 10% 8% 8% 65% 67% 71% Corporate SME Retail 16% 17% 15% 14% 9% 10% 17% 19% 25% 7% 8% 8% 16% 20% 14% Others Loan related fee Mutual fund Bancassurance fee GMTS 2/ 30% 28% 27% Bank cards 1Q16 4Q16 1Q17 1Q16 4Q16 1Q17 Others include brokerage fee, fund transfer, remittance, etc. 2/ GMTS stands for Global Markets and Transaction Services, which includes cash management, trade finance, corporate finance and corporate trust. Page 11 / 24
Deposits rose yoy but remained flat qoq Deposit Growth Deposits grew by 3.8% yoy, mainly driven by higher savings and current accounts, together with higher fixed term deposits following the Bank s campaigns. CASA stood at a relatively high level of 62.5% at the end of March 2017 which went up both yoy and qoq. On a qoq basis, deposits remained relatively flat while savings and current deposits increased following the Bank s strategy to increase the proportion of low cost deposits (CASA). Deposits (Baht billion) +3.8% yoy -0.1% qoq 1,951 61 1,871 1,887 59 58 2,026 2,025 62 71 Current +17.1% yoy +15.7% qoq 1,154 1,110 1,087 1,149 1,195 Savings +3.5% yoy +4.0% qoq 736 702 743 816 759 Fixed +3.1% yoy -7.0% qoq CASA - Current & Savings Accounts (Percentage) 62.3% 62.5% 60.7% 59.7% 62.5% Page 12 / 24
While L/D ratio rose slightly to 96.4%, the Bank continues to maintain high liquidity ratio Liquidity As loans grew by 6.2% yoy while deposits rose by 3.8% yoy, the loan-to-deposit ratio increased to 96.4% at the end of March 2017 from 94.2% at 1Q16. The Bank currently maintains a daily liquidity ratio of 20% or higher as measured by total liquid assets (at a bank-only level) to total deposits. If the ratio falls below 20%, corrective action will be immediately considered. Loan to Deposit Ratio 104% Liquidity Ratio (Bank-only) 37% 102% 100% 98% 96% 94% 92% 90% 101.3% 99.5% 96.4% 95.7% 94.2% 34% 31% 28% 25% 22% 20% 19% 31.9% 28.8% 28.7% 27.6% 25.0% The Bank s comfortable level (94-96%) Liquid assets primarily comprise cash, deposits, bilateral repo with the Bank of Thailand and investment in government securities. Page 13 / 24
Cost-to-income ratio was in line with the full year target of 40-43% Cost Efficiency Operating expenses (OPEX) rose by 16.6% yoy due to higher staff costs (+17.3% yoy) with annual salary adjustments and more staffs as well as higher other expense (+38.7% yoy), specifically higher marketing and promotion expenses and higher advisor service fees. On a qoq basis, OPEX decreased by 9.3% due to a seasonal pattern in marketing expenses. Cost-to-income ratio increased to 40.6% in 1Q17 from 38.9% in 1Q16 but decreased from 45.5% in 4Q16, in line with the full year target range of 40-43%. Operating Expenses (Baht billion) +16.6% yoy -9.3% qoq Cost-to-Income Ratio (Percentage) 11.5 12.5 12.8 14.8 13.5 38.9% 33.9% 37.3% 45.5% 40.6% Page 14 / 24
With strong capital position, the Bank is well poised to face future challenges and opportunities Strong Capital Base The Bank believes that its strong capital position in excess of the regulatory minimum requirement, together with adequate loan loss reserve coverage, are sufficient to help it withstand the impact of unexpected adverse events affecting the Bank or the Thai economy. Moreover, with this solid capital position the Bank is well prepared to take up any future growth opportunities. Capital Adequacy Ratio (Consolidated) Basel III 17.2% 17.5% 17.9% 17.7% 3.0% 2.9% 2.9% 2.9% 16.8% 2.1% Tier 2 Common Equity Tier 1 / Tier 1 14.2% 14.6% 15.0% 14.8% 14.7% 2017 Regulatory Minimum CAR 9.75% Tier 1 7.25% Bank-only CAR 17.0% 17.2% 17.6% 17.4% 16.5% CET Tier 1 14.0% 14.2% 14.7% 14.5% 14.4% Excluding net profit for 2H16 and 1Q17 in accordance with regulatory requirements. If included, the total capital ratio and CET1 capital ratio under Basel III on a consolidated basis would have been 18.4% and 16.3% respectively, and on a bank-only basis would have been 18.1% and 16.0%, respectively. Page 15 / 24
Agenda Page 1. Review of 1Q17 Results 3-15 2. Economic Indicators and 2017 Strategy & Outlook 17-24 Page 16 / 24
Faced with global market uncertainty, domestic consumer and government spending are key economic drivers in 2017 Key driver estimates (%) 1 GDP growth Export USD growth Policy rate (end period) THB/USD (end period) Loan growth (sector-wide) 2016 3.2 0.5 1.50 35.8 2.0 2017F 3.3 1.5 1.50 36.2 3.0-4.0 Deposit+BE (sector-wide) Non-deposit wealth 2 3.2 10.6 3.0-4.0 8-10 1. %YOY except for policy rate (% per annum) and exchange rate (THB/USD) 2. Includes bonds, insurance, mutual funds, private funds, pension funds, and retirement funds SOURCE: SCB Economic Intelligence Center Page 17 / 24
Shifts across consumer, technological and regulatory landscape are redefining banks operating environment Consumer shift Technological shift Regulatory shift Rise of Gen-Y Digital-only lifestyle Higher expectations towards banks products and services Tendency to embrace non-bank services Rapid growth of FinTech with large funding support Technologies blurring geographical and industry boundaries: Alibaba, e-wallets Paradigm shift in how we serve customers and core skills for the future Sector liberalization intensifying competition across sectors and countries Government projects to support banking infrastructure (e.g., National e-payment, e-kyc) Tightening regulatory control and oversight Page 18 / 24
We have set our vision to become The Most Admired Bank SCB s vision To be the Most Admired Bank What What it means does it to mean our to our CUSTOMERS EMPLOYEES SHAREHOLDERS SOCIETY REGULATORS Most PREFERRED partner Most CARING employer Most SUSTAINABLE RETURN company Most RESPONSIBLE corporate citizen Most PRUDENT bank Page 19 / 24
Business Intelligence Mobile Banking Sales-Service Separation Payments Strategic roadmap towards our vision Most Admired Bank 1 Revamp key foundations and build new capabilities for long-term sustainability Value-creation for customers and stakeholders Where we are 2 Transform existing business and operating models to extend performance and growth momentum (2017) Foundations (People / Process / Product / Technology) Page 20 / 24
1 SCB Transformation aims to revamp the bank s key foundations and build new capabilities for long-term sustainability Expand customer base across all segments Become part of customers daily lifestyles Revamp technological infrastructure Uplift workforce capability Cultivate new working culture Expand customer touchpoints and enhance customer experience that suits their lifestyles Develop new branch operating model including salesservices separation Adopt Bank as a platform strategy to boost customer engagement Understand customers behaviors and needs thru advanced data analytics Develop Big Data Analytics platform to uncover customer insights Overhaul digital banking services and platforms with best-in-class technology Revamp training programs to prepare for future digital banking Adopt suitable workforce management Build innovation culture to encourage new ideas and innovations Enhance collaboration across functions and revisit top management s KPIs Page 21 / 24
1 Targets have already been set to ensure clear deliverables of SCB Transformation Key performance indicators Larger, more engaged customer base Customer base expansion Customer experience Leading in customer satisfaction Best daily transaction and service experience Most convenient digital and physical coverage Top employer Change mindset Leading tech foundations Foundation for data driven insights Strong training and talent factory Page 22 / 24
2 In parallel, we are transforming existing business and operating models to extend performance and growth momentum Actively support Thailand s economic agenda (e.g., National e-payment) Expand strategic partnership and capture arising inorganic-growth opportunities Leverage existing client relationships especially with large corporates to win new businesses along the clients value chain Proactively manage risk and build sufficient buffer to absorb volatility Increase recurring income base (e.g., insurance, wealth management, advisory businesses) Page 23 / 24
2017 Targets 2017 Targets (Percentage) 2015 Actual 2016 Actual 2017 Targets ROE 15.9% 14.8% N.A. PROFITABILITY ROA 1.72% 1.67% N.A. Net interest margin 3.18% 3.27% 3.1-3.3% 2/ 3/ Non-NII growth 15.7% -3.9% 3-4% INCOME/ COST Cost/Income ratio 35.6% 38.7% 40-43% Total loan growth (yoy) 3.2% 5.8% 4-6% LOANS/ ASSET QUALITY NPLs (gross) 2.89% 2.67% 3.0% Coverage ratio 109.8% 134.3% ~130% Including a one-time expense from a fraud case in 1Q15, prior to any recoveries, the substantial additional provisions in 3Q15, and one-time gains from the sale of equity investments in 3Q15. Excluding these items, the 2015 ROE and ROA would stand at 17.2% and 1.9%, respectively, and cost-toincome ratio would stand at 36.5%. 2/ Including the gain on the disposal of the Bank s investment in its non-life subsidiary in 2Q14 and one-time gains from the sale of equity investments in 3Q15. Excluding these gains, the 2015 non-nii growth would stand at 3.3% yoy. 3/ Excluding the large gains from the sale of equity investments in 3Q15. If included, 2016 non-nii would decline by 17.5% yoy. Page 24 / 24