"SCB has focused on the wholesale and SME segments because these are not substantially tied to interest income, compared with the retail segment," Kannikar Chalitaporn, president of the country's fourth-largest bank by assets, said yesterday.
Declining interest income is a major trend that the banking industry has seen over the past two years, she said.
Currently, non-net interest income contributes about 40 per cent of the bank's revenue.
With the fierce competition, SCB could not enjoy a net-interest margin (NIM) as big as before. Last year, its NIM was 3.2 per cent and this year the ratio is expected to be squeezed because the bank has to carry a higher cost from deposit products, especially those that offer special rates.
Even though banks are hiking their interest rates in line with the policy rate, in practice they cannot push the financial burden on to borrowers as on depositors.
"We have higher costs from rising deposit rates, but the loan rate can't be adjusted much because of the competition. We have to secure customers. This is a reason we have to focus on increasing non-interest income instead of interest income," she said.
In general, the cost-to-income ratio of banks should be 43 per cent, similar to the level at financial houses overseas. SCB will attempt to maintain its ratio at 43 per cent despite lifting deposit interest rates. The growing demand for loans and the steadiness of transactions help to overcome the flat NIM, but if the bank relies on income from interest, its annual net profit could shrink.
In the wholesale segment, interest income is 55 per cent and non-interest income 45 per cent, while for the SME (small and medium-sized enterprises) segment, interest income is 70 per cent and non-interest income 70 per cent.
The bank will gradually increase non-interest income by 20 per cent, up from 17.7 per cent last year.
"The competition benefits customers. We never worry about the competition because the competition makes us meet good customers. However, amid the furious competition, our job is to survive in the industry," Kannikar said.
SCB's non-performing loans are improving thanks to risk management. NPLs this year should be lower than the target of 2.9 per cent. Last year, NPLs at SCB were 3.3 per cent of its loan portfolio.
Because of outstanding-loan growth in the first quarter and the trend of loan demand in the remaining quarters, SCB has raised its loan-growth projection this year to 15 per cent from 10-12 per cent.
Loan growth was fuelled by the wholesale, SME and retail businesses, which account for 45 per cent, 20 per cent and 40 per cent of the bank's portfolio, Kannikar said.
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