Siam Commercial Bank Pcl plans to spin off some of its fintech divisions as it tries to monetize its push into technology investment at a time of sluggish earnings from traditional lending.
The nation’s third-biggest lender by assets expects one of the fintech units has the potential to become a ‘unicorn,’ or a private company with a valuation of $1 billion or more, according to Siam Commercial Co-President Orapong Thien-Ngern. “We will spin off some of them to allow them more freedom and independence, including raising their own funds from other investors,” Orapong said in an interview on Wednesday.
He didn’t specify which divisions might be spun off, but the bank’s main technology units include Digital Ventures Co., which invests in startups, and National ITMX Co., a payments services provider, according to its 2018 annual report.
“Thai banking like most other countries is a sunsetting industry, as existing lenders and new players are competing for limited pools of customers,” said Orapong, 57. “Venture capital and technology investments will be the key survival strategies for SCB in attracting new customers and boosting earnings.”
Siam Commercial and other local banks have been investing in technology to fend off competition from fintech startups, at a time when margins from regular lending operations are under pressure. The bank’s return on equity has fallen from 20% in 2014 to about 11% in the quarter ended Sept. 30, according to data compiled by Bloomberg.
Chief Executive Officer Arthid Nanthawithaya said in August he wants to transform Siam Commercial into a technology company, and the firm has recently completed a four-year capital spending program worth $1.3 billion focused on artificial intelligence, digital platforms and other technology.
The Thai lender will require additional “major investments” in areas such as artificial intelligence, to improve its data and transaction processing, according to Orapong. The amount of those investments is still under consideration and will need to be approved by the bank’s board, he said.
Orapong is also chief executive officer of Digital Ventures, which has a $100 million budget for investing in technology and innovation businesses, according to its website. The unit has invested in startups such as Pagaya, an AI-based asset management company, and Ripple.
“SCB has a very positive development as the country’s leading player for digital technology, despite its late start,” said Sukrit Friestad, an analyst at CGS-CIMB Securities (Thailand) Co. in Bangkok. “Still, it will need further large technology investments to stay competitive. This would continue to put pressure on its earnings.”