Fintech Poses `Do or Die' Threat for Thai Bank Closing Branches

(Bloomberg) -- Siam Commercial Bank Pcl, Thailand’s second-largest lender, is going digital and slashing branches and headcount in a bid to survive competition from emerging financial players.

“Even though we are a large bank, we think of it as do or die,” Chief Strategy Officer Arak Sutivong said in an interview Friday, referring to a $1 billion technology investment program and its plans to shed brick-and-mortar outlets.

Siam Commercial, founded more than a century ago, is counting on such drastic changes to fight not only with regional banks but also lean fintech firms such as Japanese online chat provider Line Corp. In Thailand, Line recently partnered with local telecommunications firm Advanced Info Service Pcl to dominate the local mobile payments industry.

“Any banks that are subscale, they will have difficulty competing in the new world,” Arak said. “Look at Line for instance, they have some 40 million customers and their cost base is much smaller than any bank’s.”

Siam Commercial is in the middle of investing $1 billion in a four-year program ending 2019 to expand its client base digitally. It announced a plan this year to cut the number of its branches by two thirds to 400 by 2020, as well as reduce headcount to 15,000 from 27,000.

Seeking Partnerships

Arak said the investment plan is the preferred strategy over acquisitions or consolidation with other lenders. The bank is open to tie-ups with technology companies, he added.

“The likes of Line, we can’t acquire,” in part because of regulatory restrictions, Arak said. “But potentially partnering with Line to grow the business -- that could be a proposition.”

The bank is exploring partnerships with several large fintech companies for technology that it can’t develop on its own, Arak said in a separate television interview. He identified data analytics as one area for potential tie-ups because it can help improve loan quality. Bank executives have been visiting the U.S. and China and should be able to disclose more about a possible venture later this year, he said.

Siam Commercial’s technology investment raised its costs and contributed to a reduction in return on equity, which dropped to 12.4 percent last year from 20 percent in 2014. That may improve from 2020 as digital banking starts to bear fruit and new income streams including from wealth management kick in, Arak said.

Investors will be happy if the spending leads to more efficient operations, said Adithep Vanabriksha, chief investment officer at the local unit of Standard Life Aberdeen Plc in Bangkok.

The Thai lender said Thursday it will form a private-banking joint venture with Zurich-based Julius Baer Group Ltd. to manage the wealth of more rich Thais. Siam Commercial will hold a 60 percent stake in the new entity, with Julius Baer owning the remainder.

©2018 Bloomberg L.P.