Siam Commercial Bank: Turning upside down
Thailand's SCB is certainly one to watch, because if its bold plan works, it will change not just its own business but the local banking system too.
SCB’s chief executive Arthid Nanthawithaya
Siam Commercial Bank is in the middle of a daring digital strategy that will alter the bank forever. Its rivals should be worried.
Of course these days, no bank is able to go very long without talking about digital transformation. Read any financial institution’s annual report and you will almost certainly encounter a phrase like ‘technology-driven and customer-centric’, a mouthful that appears in SCB’s 2018 report.
These inelegant phrases are often little more than bluster, providing cover for a bank’s lack of action. But occasionally, they don’t go far enough. Siam Commercial Bank’s transformation deserves plainer language: it is dramatic, daring and destined to change the bank for good.
The grand plan was announced in the middle of 2016, when SCB’s chief executive, Arthid Nanthawithaya, announced its five-point plan: the ‘Going upside down’ strategy. This includes cutting the branch network from about 1,200 to 400 by 2020, according to Moody’s.
This is a seismic shift. Most banks attempting to pull off a digital transformation cut only a handful of branches, or occasionally just promise not to open any new ones.
The move will also lead to deep staff cuts, trimming the workforce to about 15,000 by the end of 2020, from roughly 27,000 at the end of 2016.
Going upside down goes a lot further than cutting costs. It also puts the focus on attracting digital clients; growing consumer and small business lending, and wealth management; building its ability to store and analyse large datasets; and, admittedly more vaguely, launching a ‘new business model’ that allows SCB to ‘operate as a platform’.
It is clear the bank is going to have to endure some short-term pain to reap long-term gains in this transformation
Singapore’s DBS Bank remains the poster child for digital bank transformation, jealously watched by its rivals. In May, Moody’s gave SCB the ultimate compliment by releasing a report that combined coverage of DBS and SCB, but none of their rivals. The rating agency called both banks’ plans “well-articulated and comprehensive strategies that span all functions and product types”.
SCB’s transformation plan has also impacted senior management. Until earlier this year, Nanthawithaya was both president and chief executive. He keeps the latter title and has appointed four presidents to serve under him.
The new presidents are: Arak Sutivong, former chief strategy officer; Apiphan Charoenanusorn, previously head of operations; Orapong Thien-Ngern, who keeps his job as chief executive of SCB Digital Ventures; and Sarut Ruttanaporn, who was head of the corporate segment.
The bank recently sold its insurance arm SCB Life to FWD Group Financial Services, nabbing about $3 billion from the largest-ever insurance deal in southeast Asia, according to S&P Global Ratings. SCB will still maintain a relationship with the business, providing bancassurance to its clients.
SCB has so far been coy about how it is planning to use the proceeds of the sale, but S&P analysts think it will provide the bank with a war chest to fund future acquisitions.
It has recent form in this regard, reportedly participating in the latest funding round of Gojek, the southeast Asian ride-hailing app.
Some of the money is likely to go towards funding the shuttering of branches and short-term costs that come with such a large reduction of staff. The total cost of the transformation will be about $1.2 billion, according to Moody’s.
It is clear the bank is going to have to endure some short-term pain to reap long-term gains in this transformation.
Its net profit was Bt40 billion ($1.3 billion) in 2018, down 7.1% after a big rise in operating expenses. The transformation plan pushes SCB’s cost-to-income ratio up to 46.8%, although the bank has promised investors this will quickly fall.
SCB’s investments in technology are already paying off: nine million people use its digital offerings and some 1.3 million merchants use its QR code platform, Mae Manee Money Solution. But the bank will need to prove that it can turn these separate initiatives into something wider and longer lasting.
It is on the way to doing just that. SCB’s plan is bold, but if it works it will change not just its own business but Thailand’s banking system.