Today, financial executives are under great pressure to advance their companies into the digital economy. A substantial wave of automation is coming into finance. A good financial strategy is the one that promptly forwards the right information to decision makers when they need it. In a digital world, the finance function must be capable of processing a relevant set of information on a real-time platform such that corporate planning, business operations, treasury & cash management, and risk management & compliance, among others, can synchronize the operation towards the same goals. Automation and the adoption of real-time systems will undoubtedly enable the companies to keep up with the pace of the digital economy. Also, as new technologies (e.g., machine learning AI) mature, companies will experience a substantial cost reduction in back-office operations. The Siam Commercial Bank Public Company Limited (SCB) is awarded with the Financial Management Excellence in 2019. The company has embarked on a digital transformation to challenge conventional thinking and practices to better serve its customers and renewed its vision to be “The Most Admired Bank.” The Bank’s key success factors contributing to financial management excellence are discussed hereafter.
SCB initiated a Transformation Program utilizing digital and data capabilities to drive growth. The company has streamlined both revenue streams and cost structures to remain compeitive in the market. Revenue enhancement – SCB aims to achieve a sustainable lending business goal by optimizing its loan portfolios to improve overall risk and returns and diversifying the loan portfolios to reduce a concentration risk from over exposure in any particular business segments. The Bank uses a value-based management in optimizing the loan portfolio compositions, prioritizing specific loan types or segments, and setting financial targets. SCB also continues to improve its balance sheet efficiency by emphasizing funding capabilities, liquidity, and capital efficiency and increasing a higher proportion of current and saving accounts in its deposit structure (i.e., currently at 69% of total deposits).
SCB implements ‘Lean the Bank’ initiatives to lower operating costs through automation by, for example, migrating services and sales activities from traditional branches to digital channels. To accommodate changing customers’ lifestyles, the Bank assesses, improves, and rationalizes its branch networks to obtain cost savings by operating with a smaller number of traditional branches while maintaining quality customer services.
Suitable Capital Structure and Financial Performance
SCB posted the highest ROA and ROE among its peers in 2018 due to higher net interest income and loan growth. SCB’s Transformation Program has resulted in the cost-to-income ratio standing at 46.8% in 2018 and is expeced to further decrease once the Transformation Program is materialized in 2019. The Bank targets 5-7% loan growth in 2019 by optimizing the existing loan portfolios and expanding into system integration, and data reconciliation in the financial accountings, procurement, financial consolidation, budgeting and planning, transfer pricing, asset and liability management, and IFRS 9 compliance, among others. The new system will provide real-time reports, online queries and multi-dimensional analyses, thus enable a cost allocation and profitability management across various products and services. A cloud-based system allows the Bank to modernize its finance functions with a high level of automation to improve operational efficiencies while minimizing integration complexity and maintenance efforts.
To achieve sustainable growth and profits for share holders, SCB continues to build up competitive advantages and balance financial returns with acceptable risk-taking throughout the entire company. The Bank offered a dividend payout of 47% of reported net profits to its shareholders (i.e., the highest level among its peers) in 2018.
Transparency and Accounting in Doing Business
SCB upholds its highest ethical practices and conducts its businesses with good governance. The Bank adopts a zero-tolerance policy to prevent regulatory violations to build up customer confidence and trust, thus ensuring compliance on market conduct for every related business units. For instance, SCB aligns its Code of Conduct with the Bank of Thailand’s regulations and places emphasis on its Anti-Corruption and Bribery Policy and whistle blowing practice.
SCB leveraged on a vendor-based digital innovation platform to transform its financial accounting systems and reports, making the Bank one of the major cloud implementations in the Thai banking sector. Specifically, the project started with a redesign of a new chart of accounts, and e-Information platform to investor relations tasks (e.g., IR Chatbot and mobile application for debenture holders), among others. One company creates a financial management system to integrate its back-office operations (e.g., cash management and trade and FX transactions) through its ERP system with the bank’s interface functions. Furthermore, one nominated bank digitalizes its entire L/C process from end to end to enhance efficiency and security for its customers and one nominated hospital administers an Application for telemedicine service allowing patients to have videos and chat consultations with doctors and then making payments through the App.
Other nominated companies establish a regional treasury center abroad to manage taxes and optimize financing costs and appoint risk management committee to monitor business and financial risks and consider uses of financial derivatives for hedging (e.g., foreign currency and interest rate hedging). Financial innovations in the other nominated companies include application of blockchain technology to unsecured lending (e.g., credit card and personal loan). To fund growth, the Bank advances into diversified sources of funds by expanding its customer base in the retail and wealth segments, securing the ‘main operating bank’ status, and driving customer engagement in the Bank’s ecosystems. The Bank maintains adequate liquidity with a daily liquidity ratio of 20% or more and high-quality liquid assets (e.g., cash and deposits) of more than 25% of its total deposits. SCB retains a strong capital position with high loan-loss provisions to with stand any adverse company-specific or economic shocks. A strong capital strategy (e.g., the capital adequacy ratio of 17.1% as of June 2019) enables the Bank to pursue future growth opportunities. issue a letter of credit, bank guarantee and to procurement process, robotics process automation (RPA) to payment process,