Siam Commercial Bank PCL CLSA Investors Forum 2011 September 2011
1. Agenda Review of Result 2Q11 Page 3-17 2. Going Forward 19-23 IMPORTANT DISCLAIMER: Information contained in this document has been prepared from several sources and the Bank cannot confirm, in all cases, the accuracy and completeness of such data, particularly where the data 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 2
2011 TARGETS AND 1H11 RESULTS 2010 2011 ACTUAL 1/ TARGET 1/ 1H11 ACTUAL PROFITABILITY LOAN COST AND INCOME ASSET QUALITY CAPITAL DISTRIBUTION ROE 16.4% 16-18% 19.6% 2/ ROA 1.7% 1.8-2.0% 2.0% 2/ NIMs 3.2% 3.2%+ 3/ 3.19% Total loan growth (yoy) 12.6% 10-12% 21.1% Non-NII growth (yoy) 17.7% ND 33.7% 2/ Net fee & insurance premium growth 20.4% 15%+ 34.2% Cost to income 44% 45% 37.0% NPLs (gross) 3.3% 2.9% 2.69% Capital Adequacy Ratio 15.5% ND 14.4% Tier I 11.6% ND 10.7% Branches 1,019 1,050+ 1,037 ATMs 8,006 9,250+ 8,169 1H11 RESULT (Highlights) - Record first half net profit of Baht 16.1 billion (growth of 37.9% yoy) 2/ - Robust loan growth of 21.1% yoy across all business segments and the corresponding uplift to NII - Strong Non-NII growth owing to solid fee and premium income growth of 34.2% yoy - NPLs dropped to 2.69% of total loans, leading to lower impairment loss on loans and debt securities 1/ Under the new financial statement format introduced in 2011. Targets set at the end of 2010 2/ Excluding Bt 5.1bn one-time investment gain on SCB Life. If this gain was included, the ROE = 26.0%, ROA = 2.7%, Non-NII growth = 72.8%. = On track to target or higher 3/ Depends on the interest rate environment ND = Not disclosed Page 3
KEY ACHIEVEMENTS IN 2Q11 Page 1. Solid quarterly net profit 2. High loan growth across all segments 3. Improved asset quality 4. Robust fee income and insurance premium growth 5. Strong deposit growth 6. Effective cost control 7. Solid capital base 5 6-7 8 10-11 12-13 14 15 Page 4
RECORD QUARTERLY OPERATING PROFIT WITH HIGH ROE & ROA Solid Results Net profit increased by 53.0% yoy in 2Q11 to Baht 8.1 billion the highest profit level for a second quarter Robust profitability with high ROE and ROA Net Profit (Baht billion) 13.1 +53.0% yoy +1.8% qoq 1/ ROE (Percentage) 2/ Operating profit (Baht billion) 16.8 8.6 10.5 9.9 12.1 11.8 +41.3% yoy +2.9% qoq ROA (Percentage) 2/ 1/ Excluding one-time investment gain on SCB Life acquisition in 1Q11. If this was included in 1Q11, net profit in 2Q11 would show a drop of 37.7% qoq. 2/ ROE and ROA including investment gains on SCB Life acquisition stood at 31.9% and 3.4% respectively Page 5
HIGH LOAN GROWTH ACROSS ALL SEGMENTS Loans Loan growth of 21.1% yoy was broad-based while the qoq expansion was mainly from the wholesale, SME, and auto hire purchase segments, which were the direct result of SCB s market share growth strategies Wholesale Loans 1/ 2/ (Baht billion) SME Loans 1/ 2/ 3/ (Baht billion) Market Share Top 3 +21.6% yoy +2.3% qoq Market Share #4 513 +31.4% yoy +8.8% qoq 207 422 424 463 502 157 162 177 190 Wholesale 43.6% SME 17.6% Mortgage Loans 2/ (Baht billion) SCB-Auto Loans 2/ (Baht billion) Retail +11.5% yoy 38.8% Market Share 29% 4/, #1 Market Share 13.3% +36.6% yoy +3.9% qoq, #4 +6.6% qoq 311 98 279 283 289 300 72 77 84 92 1/ Includes reclassification of large SME s under Wholesale Banking (previously under SME s) 2/ Includes loans classified as NPLs 3/ The Bank reclassified small SME loans which used to be shown under the Retail to under the SME segment in 2Q11 4/ Market share for mortgage portfolio amongst commercial banks, comprising of housing loans and consumer loans 5/ Market share among the top 5 auto loan lenders, excluding captive finance companies Page 6
RESULTED IN STRONG GROWTH IN NII AND WITH IMPROVING NIMs NII The growth in NII yoy was the result of strong loan growth, the rising interest rate environment, and the higher interest income from investments NIM increased despite the Bank s rising cost of funds in part, due to the Bank s concerted efforts to improve yield and, in part, from the rising interest rate momentum Net Interest Income (Baht billion) +29.7% yoy +14.3% qoq 12.6 Yield of Earning Assets, NIM and Cost (Percentage) Yield on earning assets Net interest margin Cost of funds 4.24% 4.36% 4.34% 4.46% 4.71% 9.7 10.1 10.4 11.0 3.26% 3.35% 3.15% 3.14% 3.24% 1.13% 1.14% 1.34% 1.52% 1.77% Yield by BU Wholesale 4.0% 4.1% 4.0% 4.2% 4.6% SME 5.6% 5.5% 5.7% 6.1% 6.5% Retail 5.8% 5.7% 5.8% 6.0% 6.3% Page 7
ALL ASSET QUALITY INDICATORS SHOWED IMPROVEMENT Asset Quality NPLs fell to 2.69%, due to the Bank s preemptive strategies to prevent new NPL formation, improved collection workout practice for existing NPLs, and the improved economic environment. The improvement in asset quality was broad-based and across all business segments. Gross NPL ratio & NPL Coverage ratio (Percentage) The new NPL formation and credit costs have continued to decrease, and are now at lowest level in recent years New NPL Formation (Quarterly basis) (Percentage) NPL Coverage ratio 3.37% 3.13% 2.37% 2.22% 2.11% Gross NPL% New NPLs (% of total loans) NPL by Segment Credit Cost (Annualized basis) Wholesale SME Retail 3.3% 3.2% 2.9% 2.6% 2.3% 0.47% 0.45% 0.53% 0.31% 0.29% 11.2% 11.1% 8.7% 8.2% 7.4% 3.4% 3.1% 2.4% 2.2% 2.1% Page 8
STRONG AND INDEPENDENT RISK MANAGEMENT Risk Management An effective Risk Management function The Bank has a robust Risk Management Framework with a corresponding governance structure, to ensure that risks are managed efficiently and effectively. The Risk Management Group reports directly to the President and is independent of the origination units. Over the past 8 years, the risk management group has not only grown in size but has acquired the analytical capability necessary to monitor risk effectively. The Bank s effective credit risk management process has contributed to a steady improvement in asset quality, with the gross NPL ratio improving from 5.14% in 2008 to 2.69% as of June 30, 2011. has resulted in the highest ratings among Thai financial institutions Long-Term Foreign Currency Senior Unsecured Note 1/ Outlook BFSR 2/ Baa1 A3 Stable C- BBB+ BBB+ Stable C+ BBB+ BBB+ Stable C 1/ Rating assigned to the Bank s USD2.5bn Euro Medium Term Note (EMTN) program issued this year 2/ Bank Financial/Fundamental Strength Ratings 3/ The only Thai financial institution with this rating. 3/ Page 9
A YEAR-ON-YEAR SURGE IN NON-NII Non-NII Non-NII has increased +36.4% yoy owing to higher insurance premium income and net trading income. Non-Interest Income (Baht billion) 14.1 6.1 8.3 8.2 +36.4% yoy -8.0% qoq * 8.3 Gain (Loss) on Investment * Other income 1/ Gain on trading and FX Net fee and Net insurance premium 2/ 39% 45% 44% 56% 40% Non-NII% to total operating income * Stripping out the one-time investment gain on SCB Life acquisition in 1Q11. If these gains are included, non-interest income declined 41.1% qoq. 1/ Other income includes income from equity interest in affiliated companies and dividend income. 2/ From March 2011, bancassurance fee from SCB Life is eliminated on consolidation and reflected under net insurance premium. Page 10
ANCHORED ON ROBUST GROWTH IN FEE INCOME Fee income Net fee and insurance premium income grew 30.8% yoy from a stronger focus on fee based activities in Wholesale, Business (SME), and Retail Banking business segments The yoy growth was mainly driven by higher fee income from insurance products, card business and GMTS Wholesale Fee Income (Baht billion) 0.91 1.03 1.47 1.50 1.21 +33.6%yoy -19.6%qoq 1 Net Fee Income and Net Insurance Premium Breakdown (Percentage) Others 3 12.2% 13.0% Loan related fee 10.0% 10.2% SME 0.29 0.40 0.51 0.58 0.67 +133.9%yoy +14.6%qoq Mutual Fund Bancassurance and net insurance Premium 10.8% 11.8% 24.5% 25.8% Retail 3.56 3.71 3.94 4.34 4.34 +21.8%yoy -0.1%qoq GMTS 2 Bank cards 18.7% 23.9% 15.5% 23.7% 1Q11 2Q11 1/ The wholesale fee tends to be lumpy. The higher levels in 4Q10 and 1Q11 were on the back of significant deals in those quarters versus a relatively quiet 2Q11. 2/ GMTS stands for Global Markets and Transaction Services, which includes cash management, trade finance, corporate finance and corporate trust 3/ Others include brokerage fee, fund transfer, remittance, etc. Page 11
STRONG DEPOSIT GROWTH AND CHANGING MATURITY MIX Deposit The Bank has continued its special deposit campaigns into Q2, with significant growth in the volume of Bills of Exchange (BE) 1/. However, CASA remains high at 59%. Bills of Exchange, Total Deposits, CASA (Baht billion, %) Deposits + BE Bills of Exchange Total Deposits 938 1,047 1,134 1,185 1,270 10.7 44.0 41.9 58.8 927 1,003 1,092 1,127 172.3 1,098 +35.4%yoy +7.2%qoq +1513.9%yoy +193.2%qoq +18.4% yoy -2.5% qoq 36% 38% 39% 40% 41% 59% 57% 57% 55% 54% Fixed Savings Current Fixed Deposits & Breakdown by Term (Baht billion) Over 1 year 6 months and up to 1 year Less than 6 months 335 144 386 166 427 29 72 66 161 148 156 454 455 205 257 239 73 99 125 117 +36.0% yoy +0.2% qoq CASA 64% 62% 61% 60% 59% 1/ Bill of Exchange is a borrowing instrument and is akin to an uninsured deposit in the Thai market. Page 12
LIQUIDITY IS AT A COMFORTABLE LEVEL The Bank s loan to deposit + BE 1/ ratio fell in 2Q11. Given the high level of competition for deposits in the market at the moment, the Bank is comfortable with maintaining a loan to deposit ratio (including BE) in the mid 90s%. Liquidity In addition to LDR, the Bank monitors its liquidity ratio on a daily basis. If the ratio falls below 20% of total deposits, immediate corrective action is considered. Loan to Deposit Ratio Liquidity Ratio Loan to Deposit 94%-96% 20% Loan to Deposit + Bills of Exchange (BE) 1/ The Bank expects deposits (including BE) to grow in tandem with loan growth in order to keep LDR within the comfortable range. Liquid assets primarily comprise cash, deposits and bilateral repo with the Bank of Thailand as well as investment in government securities 1/ BE or Bills of Exchange are included in deposits as they are essentially akin to uninsured deposits Page 13
EFFECTIVE COST CONTROL Cost control The Bank expects cost to income ratio (excluding the one time investment gain) for 2011 to remain relatively stable at about 45% or lower, supported by strong loan and fee income growth Cost to Income Ratio (Percentage) * * Excluding the one-time investment gain in 1Q11. If this gain is included, the cost to income ratio would stand at 32.9%. Page 14
STRONG CAPITAL BASE TO SUPPORT GROWTH AND EMERGING REGULATORY REQUIREMENTS Capital Base The Bank believes its solid capital position would provide the flexibility to grow its business in a timely manner as growth opportunities arise in the quarters to come. Capital Adequacy Ratio (Bank only) Basel II Standardized Approach Tier II Tier I 16.2% 16.8% 15.5% 14.6% 14.4% * * Should the 1H11 net profit be taken into consideration, CAR would stand at 16.1%, while Tier I would stand at 12.4%. Page 15
SCB RETAINS A STRONG COMPETITIVE POSITION AMONGST THE BIG THAI BANKS Competitive Positioning Highest Net Profit (Consolidated, Baht billion) High ROE & ROA (Percentage) 1H11 Net profit 1H11 ROE 1H11 ROA * * * Highest Market Cap (Baht billion) Market Cap. as at Jun 30, 2011 Largest Branch & ATM Networks (as at Jun 30, 2011) # of Branches # of ATMs * Excluding one-time investment gain on SCB Life recorded in 1Q11. If such gain was included, first half net profit would stand at Bt 21.2bn, ROE at 26.0%, and ROA at 2.7%. Page 16
SCB RETAINS A STRONG COMPETITIVE POSITION AMONGST THE BIG THAI BANKS (cont d) Highest Loan Growth (1H11 vs. 1H10) (Percentage) Highest Proportion of Non-NII (1H11) (Percentage) Non Interest Income to Total Income 1/ Competitive Positioning 2/ Lowest Cost to Income Ratio 3/ (1H11) (Percentage) Lowest Credit Cost 4/ (1H11) (Percentage) 1/ Including net insurance premiums less net insurance claims 2/ Exclude one-time investment gain from SCB Life acquisition 3/ Excluding non-recurring items for SCB particularly the one time investment gain relating to SCB Life 4/ Annualized basis Page 17
1. 2. Agenda Review of Result 2Q11 Going Forward Page 3-17 19-23 Page 18
KEY DELTA GROWTH DRIVERS OVER THE NEXT 3 YEARS Key Growth Segments Major current initiatives to obtain market share growth, over and above business as usual: Wholesale Expansion of market share, particularly in terms of fee income from the larger enterprises in this segment SME Gain momentum from new SME business model, centered around gaining market share in small and medium scale businesses Auto Loans Expansion of market share in the auto hire-purchase segment and aim to be the #1 originator within 2-3 years Page 19
SCB HAS IMPLEMENTED A NEW PLATFORM TO SUPPORT EXPANSION OF MARKET SHARE IN THE WHOLESALE SEGMENT Key Delta Growth Segments WHOLESALE Wholesale Loans 1/ (Baht billion) EXISTING POSITION FUTURE POSITION (2013+) Market Share Top 3 +21.6% yoy +2.3% qoq Among the top 3 in wholesale lending Market leading position in most feebased products Remain as a top 3 lender STRATEGIC THRUST: Top talent acquisition since 2008 and further reorganization in 2010 has repositioned the SCB wholesale team as the leading player in this segment. Total Solution: Proactively identify issues and opportunities faced by customers, leading to holistic solutions that meet specific customer needs Increase the fee-income proportion: Use of corporate finance and advisory services, embedded with treasury products, across the client base Gain wallet share: Increase market share by positioning the Bank as an enterprise s preferred Bank 1/ Includes loans classified as NPLs Wholesale Fee Income (Baht billion) +33.6%yoy -19.6%qoq 2/ 2/ The wholesale fee tends to be lumpy. The higher levels in 4Q10 and 1Q11 were on the back of significant deals in those quarters versus a relatively quiet 2Q11. Page 20
SCB HAS IMPLEMENTED A NEW BUSINESS MODEL TO EXPAND ITS MARKET SHARE IN THE SME SEGMENT Key Delta Growth Segments EXISTING POSITION Ranked #4 in the market SME FUTURE POSITION (2013+) Ranked top 3 in the market Increase the SME loan volume by about Bt 150 bn over the next three years, with substantial uplift in fee income STRATEGIC THRUST: The SME business unit is leveraging from the wholesale banking customer supply chain as well as the self employed segment who are currently retail customers. SME Brand: Strengthen the SCB SME brand by anchoring marketing activities around core SME products Footprint: Expand nationwide footprint through establishing Business Relationship Centers in new areas Products: Introduce new products to expand the customer base and generate higher margins. Grow feebased income, by offering bundled product solutions SME Loans 1/ (Baht billion) Market Share #4 1/ Includes loans classified as NPLs SME Fee Income (Baht billion) +31.4% yoy +8.8% qoq +133.9% yoy +14.6% qoq Page 21
4Q10 2Q11 4Q10 2Q11 4Q10 2Q11 4Q10 2Q11 4Q10 2Q11 MAINTAIN LEADING POSITION IN KEY RETAIL PRODUCTS AND BUILD MARKET SHARE IN AUTO LOANS RETAIL (AUTO LOANS) Auto Loans (Baht billion) Key Delta Growth Segments EXISTING POSITION FUTURE POSITION (2013+) Market Share 13.3% 1/, #4 Leading positions in Mortgage, Credit Cards, Bancassurance Maintain leading position in key products #1 in terms of loan origination for Auto loans STRATEGIC THRUST FOR AUTO LOANS: New tech-savvy processes have shortened turnaround times and enabled customers to obtain Auto loans from across 1,000 branches. +17% +16% ytd ytd 90 98 77 84 +13% +12% ytd ytd 143 119 126 106 240 +9% ytd 261 Strengthen relationships with existing dealers: Using key account management programs Footprint: Develop relationships with new dealers Products: Introduce new products such as My Car, My Cash Process: Implement savvy processes that leverage from the Bank s dominant retail distribution network. KK SCB TISCO BAY TCAP While we have an advantage in terms of cost of funds, we intend to win market share through a more compelling value proposition to potential customers (and dealers). 1/ Market share among the top 5 auto loan lenders, excluding captive finance companies KK = Kiatnakin Bank; TISCO = TISCO Financial Group; BAY = Bank of Ayudhya; and TCAP = Thanachart Capital Page 22
REVISED 2011 TARGETS 2010 ACTUAL 1/ ORIGINAL 2011 TARGET 1/ 1H11 ACTUAL 2011 Targets REVISED 2011 TARGET 2/ PROFITABILITY LOAN COST AND INCOME ASSET QUALITY CAPITAL DISTRIBUTION ROE 16.4% 16-18% 19.6% 2/ ROA 1.7% 1.8-2.0% 2.0% 2/ NIMs 3.2% 3.2%+ 3/ 3.19% Total loan growth (yoy) 12.6% 10-12% 21.1% Non-NII growth (yoy) 17.7% ND 33.7% 2/ Net fee & insurance premium growth 20.4% 15%+ 34.2% Cost to income 44% 45% 37.0% NPLs (gross) 3.3% 2.9% 2.69% Capital Adequacy Ratio 15.5% ND 14.4% Tier I 11.6% ND 10.7% Branches 1,019 1,050+ 1,037 ATMs 8,006 9,250+ 8,169 17-19% 1.8-2.0% 3.2% 3/ 15-18%+ ND 25%+ 43-44% 2.5% ND ND 1,050+ 9,250+ 1/ Under the new financial statement format introduced in 2011. Targets set at the end of 2010 2/ Excluding Bt 5.1bn one-time investment gain on SCB Life. If this gain was included, the ROE = 26.0%, ROA = 2.7%, Non-NII growth = 72.8%. 3/ Depends on the interest rate environment ND = On track to target or higher = Not disclosed Page 23
IMPORTANT DISCLAIMER: Information contained in this document has been prepared from several sources and the Bank cannot confirm, in all cases, the accuracy and completeness of such data, particularly where the data 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 24