SCB X "Strong franchise, near-term earnings pressure but resilient yields"

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SCB X "Strong franchise, near-term earnings pressure but resilient yields"

SCB X UBS Research

UBS Research THESIS MAP Thesisa guideMapto our thinking and what´s where in this report

Pivotal Questions Q: Will NIM pressure earnings in 2026?

Yes. We expect NIM compression—particularly in Q126—to be the key driver of a 9% YoY decline in

2026E earnings with only partial mitigation from rate hikes and a non-NII recovery. While a

cumulative 50bp policy rate hike in H226E should support margins, we think the timing mismatch

suggests downside risk to full-year NIM delivery.

Q: Is the high dividend sustainable?

Yes, in the near term, but medium-term sustainability is contingent on improvements in asset quality

and capital buffers. We expect SCB to maintain a c80% payout ratio supported by its strong capital

position, but flag potential normalisation to c70% as Basel IV is implemented. more

UBS VIEW We expect SCB’s earnings to remain under pressure in 2026E with net profit declining 9% YoY,

primarily driven by meaningful NIM compression, particularly in Q126. While a cumulative 50bp

policy rate hike in H226E should provide some support to interbank loan margins, risks to achieving

the 3.0-3.2% NIM guidance remain skewed to the downside. While stronger-than-expected fee

income and non-NII in Q126 suggest improving capital market sentiment and structural growth in

wealth management, asset quality remains a key concern with potential NPL upside risks for

leveraged segments. However, management may mitigate this through potential NPL offloading

initiatives. Despite SCB’s strong franchise position, we think near-term ROAE remains constrained by

elevated credit costs and a relatively high equity base.