Siam Commercial Bank (SCB) is revamping its core banking system, aiming to enhance its digital banking services and address rising competition from virtual banks.
Embracing digital transformation is essential for driving growth in the banking sector despite significant challenges, said chief executive Kris Chantanotoke.
CORE BANKING REVAMP
According to Mr Kris, SCB is modernising its core banking system to provide enhanced financial services to customers as part of its "Digital Bank with a Human Touch" strategy, which also integrates artificial intelligence (AI) technology.
The bank plans to launch the pilot project for its core banking restructuring at the beginning of 2025. The revamp includes both operational processes and the transition to digital banking services.
As part of the restructuring, the bank reduced around 1,000 manual operating systems, he said.
"The core banking restructuring will enhance efficiency and reduce operating costs. SCB lowered its cost-to-income ratio from 41% in recent years to 36.7% now," said Mr Kris.
"Over the long term, the bank plans to reduce the ratio to 30%, a level on par with successful virtual banks."
As part of the overhaul, SCB, the country's fourth-largest lender by total assets, has partnered with Sunline, a global provider of banking technology services based in China, to revamp its IT architecture for the core banking system.
The bank also introduced AI-powered banking services to expand digital loans and enhance control over non-performing loans. SCB utilised AI technology to optimise its retail loan portfolio.
NOT OVERLY CONCERNED
He said the introduction of virtual banks is expected to foster competition in the Thai banking sector. The five consortiums vying for the Bank of Thailand's virtual banking licences are robust and have broad coverage across the country, said Mr Kris.
The consortiums, led by Gulf Energy Development, SCB X Group, Ascend Money Group, Sea Group and Lighthub Asset, are all well-positioned.
In the initial phase, the central bank plans to issue three licences for new virtual banking operations, with these virtual banks expected to start operating in mid-2025.
While SCB is confident about its capabilities and competitiveness, he said the bank must enhance its operational handling in response to these new entrants. However, the challenge of household debt remains a significant limitation for both traditional and virtual banks in the retail sector, said Mr Kris.
The central bank wants virtual banks to serve the underbanked and unbanked populations, a key condition for granting new licences. This requirement poses a significant challenge for virtual banks, he said.
"Virtual banks may shift their focus to the upper segments of the underbanked and unbanked populations, creating some overlap with the target segments of traditional banks," said Mr Kris.
HOUSEHOLD DEBT
Thailand's high household debt presents a significant challenge for the banking sector. Although the household debt-to-GDP ratio dropped to 89.6% in the second quarter of this year, down from 91% in the previous quarter, it remains at a concerning level, he said.
"If informal debt is included, the household debt-to-GDP ratio would exceed 100%, making it a major hurdle for both traditional and virtual banks in retail banking," said Mr Kris.
"The global survival rate of virtual banks is not high."
International data shows only 10% of new virtual banks survive long-term, meaning the new businesses face considerable challenges, he said.
SCB is focusing on individual clients earning more than 50,000 baht per month, particularly for mortgages and auto loans, to manage asset quality in the face of increasing credit risks.