Banks Get Punted From Thailand’s List of Most Valuable Companies

(Bloomberg) -- Thailand's biggest banks aren't so large when it comes to their market values.

Siam Commercial Bank Pcl was overtaken last month by agro-industrial firm Charoen Pokphand Foods Pcl, leaving Thailand as the only Southeast Asian economy without lenders among its 10 most-valuable companies.

Indonesia, Malaysia, Singapore and Vietnam each have three banks in their top 10. The Philippines counts two, with at least two other enterprises providing some financial services.

“Big is not necessarily better for banks,” said Diksha Gera, an analyst at Bloomberg Intelligence in Singapore. “Slow economic growth has resulted in weak balance-sheet growth,” she said, adding that Thai lenders need new markets to increase their scale because of limited domestic opportunities.

The Stock Exchange of Thailand Banking Index has dropped 35% this year, compared with a 15% decline for the benchmark gauge.

“The most natural outward moves for Thai banks would be to Cambodia, Laos, Myanmar and Vietnam, though Bangkok Bank's recent acquisition in Indonesia may spur other large lenders' M&A interest too,” she said. “But expanding outside the home market isn't usually ideal for shareholder returns, as it is challenging to create shareholder value.”

At home, Thai banks face the deepest economic contraction since the 1990s, an aging population and recent regulatory changes designed to narrow margins on both loans and fee-based activities.

“The appeal of Thai banks compared with other regional lenders is being reduced,” said Theerasate Prompong, an analyst at Maybank Kim Eng Securities (Thailand) Pcl.

Change of Guard

The 10 largest exchange-traded Thai companies now include four different energy, power or chemical producers, led by state-controlled PTT Pcl. Airports of Thailand Pcl, telecom operator Advanced Info Service Pcl and convenience-store owner CP All Pcl are also in the group, as are Thai Beverage Pcl and Bangkok Dusit Medical Services Pcl.

Regionally, there's also been a changing of the guard.

On June 17, online shopping and gaming firm Sea Ltd. became the most-valuable company in Southeast Asia when it eclipsed Indonesia's PT Bank Central Asia. The 11-year-old technology firm passed Singapore's DBS Group Holdings Ltd. for the No. 2 slot in mid-May.

“Banks are what shopping centers were 10 years ago,” said Mark Matthews, head of Asia research for Bank Julius Baer & Co. in Singapore. Retail branch banking is being downsized and services “are being absorbed into 7-Elevens,” he said.

Siam Commercial currently ranks 11th among Thai companies by market capitalization, with Kasikornbank Pcl and Bangkok Bank Pcl at 12th and 16th, respectively.

Still, market cap isn't everything as long as the lenders remain profitable.

“Thai banks behave like an oligopoly and haven't let their margins collapse through aggressive price undercutting,” Gera said. “The major Thai banks are well-managed with a focus on profitability instead of size.”

©2020 Bloomberg L.P.