Fitch Affirms Siam Commercial Bank at 'BBB' and 'AA+(tha)'; Outlook Stable

Monday 01 August 2022 15:42
Fitch Ratings has affirmed The Siam Commercial Bank Public Company Limited's (SCB) Long-Term Issuer Default Rating (IDR) at 'BBB' and National Long-Term Rating at 'AA+(tha)'. The Outlooks are Stable. Fitch has also affirmed the bank's Viability Rating (VR) at 'bbb' and its Government Support Rating (GSR) at 'bbb'.

A full list of rating actions is below.

VR and Support-Driven IDR: SCB's Long-Term IDR and National Ratings are underpinned by both the bank's standalone credit profile - as indicated by its VR - and Fitch's expectation of support from the government as denoted by the GSR. The Short-Term IDR is at the higher option of 'F2', to reflect that the likelihood of government support is more certain in the near term. The National Ratings also take into account a comparison of the bank's credit profile relative to other entities rated on the Thai national scale.

Environment Recovering from Pandemic: The operating environment (OE) is on a gradually improving trend that would support banks' performance, with Fitch expecting GDP growth of 3.2% in 2022 and 4.5% in 2023. The OE score is unchanged at 'bbb' with a stable outlook - the implied score for the OE is in the 'bb' category, but Fitch applies a positive adjustment based on the Thai sovereign rating of 'BBB+'/Stable. The sovereign has the ability and willingness to support business activity and market stability, as evident from its measures during Covid-19.

Sustained Robust Domestic Franchise: SCB is a leading commercial bank in Thailand, with a nationwide presence and brand recognition. It operates as a universal bank with strong market positions in many financial products, such as retail lending, transactional banking, and fund management. These market positions should continue to support business opportunities and the capacity to generate earnings. Fitch does not expect the group restructuring to a holding company structure to weaken SCB's competitive strengths significantly.

Persisting Asset-Quality Pressure: The implied score for asset quality is in the 'bb' category, but Fitch applies a positive adjustment of 'Collateral and Reserves' based on SCB's ability to maintain acceptable reserve buffers through the cycle, with average loan-loss allowance coverage of 136% during 2012-2021 in addition to a high level of collateralised loans.

The outlook on asset quality has been revised to 'stable', reflecting Fitch's belief that the risk of a sharp deterioration in asset quality has declined, based on year-on-year improvements in business activity. SCB's cautious loan growth (averaging 3.2% in 2018-2021 compared with the industry's average of 5%) would also reduce pressures on new NPL formation.

Recovering Profitability: Fitch believes that SCB's profitability should continue to improve gradually in 2022-2023, supported by an earnings recovery from easing pressure on net interest margins and improved fee-income opportunities. Furthermore, credit costs are likely to decline further, after peaking at 58% of pre-impairment operating profit in 2020.

SCB may face transient higher expenses related to the group restructuring in 2H22, but we expect the four-year average of the core earnings ratio to remain well within the 'bbb' implied category (i.e. operating profit/risk-weighted assets (RWA) above 1.5%; 1Q22: 2.3%).

Acceptable Capital Buffers: SCB's common equity Tier 1 (CET1) ratio of 17.5% at end-1Q22 was the highest amongst Thai D-SIB peers, and Fitch expects the bank to maintain sound core capitalisation over the longer term. As part of the group restructuring, SCB expects to make a substantial one-off dividend payment to its holding company parent in 2H22 that would reduce its standalone CET1 ratio to around 15%, but the consolidated group CET1 should remain little changed and act as a key buffer against downside risks.

Franchise Supports Funding: SCB's funding and liquidity remains supported by a robust retail client base, and a high portion of low-cost and stable transactional current and savings accounts, which comprised 80% of total deposits at end-1Q22. The liquidity profile has remained healthy, with a relatively stable loans-to-deposits ratio of about 93% at end-1Q22 and strong liquidity levels, with a liquidity coverage ratio of 202% at end-2021.

Significant Systemic Importance: SCB's GSR reflects Fitch's perception of the bank's importance to the domestic financial system, which leads to a high propensity of government support. Its deposit market share is around 15%. The bank is designated as one of the country's six domestic systemically important banks by the Bank of Thailand, reflecting its scale and financial system linkages. The GSR also takes into account the Thai government's ability to support banks, which is indicated by the sovereign Long-Term IDR.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Negative rating action on both SCB's GSR and VR would lead to similar action on the bank's IDRs and National Long-Term Rating. SCB's National Long-Term Rating could also be downgraded to 'AA(tha)' if, in Fitch's opinion, its credit profile weakens on a relative basis in the national rating universe of rated entities in Thailand.


The VR could be downgraded to 'bbb-' if SCB's financial position deteriorates by more than we expect. This may, for example, arise from heightening macroeconomic risks and a stalled economic recovery resulting from global economic headwinds, if it were to indicate that the bank has a higher risk appetite or weaker business profile than we currently assess. For example, such stresses may be indicated by an impaired-loans ratio of above 6% for a sustained period (1Q22: 4.5%), combined with weaker loss-absorption buffers, such as a CET1 ratio of below 13% and a loan-loss coverage ratio of below 120%, and/or not sustaining an operating profit/RWA ratio above 1.5%.


There could be negative action on the GSR if the government's ability to provide support declines, which could be evident from a downgrade of Thailand's Long-Term Foreign-Currency IDR. There may also be negative rating action if Fitch believes that the government's propensity to provide support to SCB may have diminished, for example through a large decline in the bank's level of systemic importance or significant regulatory changes. However, we believe there is only a limited prospect of a weaker government propensity to support SCB over the medium term.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

There could be positive rating action on SCB's IDRs and National Long-Term Rating following similar changes in either its GSR or VR. The National Ratings of SCB also take into account the relative creditworthiness of peers rated on the national scale.


SCB's VR could be upgraded to 'bbb+' if key metrics improve in a sustainable manner, while a business profile that leads to consistently better-than-sector financial performance is combined with a moderate risk appetite. This would be likely to be aided by a significantly stronger operating environment, and may be evident in key financial ratios such as an operating profit/RWA ratio above 2.5% (1Q22: 2.3%) and an impaired-loans ratio of less than 3%, combined with the maintenance of key buffers, such as a CET1 ratio of above 16%. Nonetheless, near-term upside appears limited, in light of an environment which is still challenging.


An upgrade of the GSR may be triggered by a similar action on Thailand's Long-Term Foreign-Currency IDR, as this would indicate the government's higher ability to support systemically important banks such as SCB. Any upward revision of the GSR would also need to take into consideration whether the government's propensity to support banks remains intact. It is unlikely that there would be further positive action on SCB's GSR if the sovereign rating remains unchanged.


SCB's senior debt represents the bank's unsecured and unsubordinated obligations, and is equalised with the Long-Term IDR and the National Ratings.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A downgrade in SCB's Long-Term IDR or National Ratings would lead to a similar action on the rating of the senior debt.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upgrade in SCB's Long-Term IDR or National Ratings would have a similar effect on its senior debt ratings. There is no upside for the National Short-Term Rating of the senior debt as it is already rated at the highest level on the scale.

The operating environment score of 'bbb' has been assigned above the 'bb' category implied score due to the following adjustment reason: sovereign rating (positive).

The asset quality score of 'bbb-' has been assigned above the 'bb' category implied score due to the following adjustment reason: collateral and reserves (positive).

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit

The principal sources of information used in the analysis are described in the Applicable Criteria.

SCB's GSR is linked to the Thai sovereign Long-Term Foreign Currency IDR.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit

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Source: Fitch Ratings