OCBC: 2Q25 revenue and net profit in line with consensus.
- 2Q25 net profit in line, largely driven by low credit costs
- NIM dropped 12bps q/q to 1.92% as benchmark rates declined
- Management lowered its FY25F NIM guidance; dividend payout ratio guidance also revised slightly
- Maintain HOLD; TP of SGD15.80
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Non-interest income lowered q/q, weighed down by insurance income. Non-interest income rose 5% y/y but fell 4% q/q to SGD1,264mn as higher fee income was more than offset by a moderation in insurance income. Net fees and commissions came in at SGD580mn (+24% y/y, +6% q/q) after seeing growth in wealth management, investment banking, and other fees. Trading income of SGD375mn (+6% y/y, –5% q/q) was driven by stronger customer flow income while GEH saw a lower contribution at SGD226mn (-23% q/q, -26% y/y).
2Q25 saw significantly lower credit costs of 12bps (1Q25: 24bps) driven by allowances for both impaired and non-impaired assets. Total allowances were higher q/q at SGD114mn, 12bps (vs. 1Q25: SGD212mn, 24bps) including general allowances (stage 1+2): SGD49mn, 5bps (vs. 1Q25: SGD118mn, 13bps) and specific allowances (stage 3): SGD65mn, 7bps (vs. 1Q25: SGD94mn, 11bps). NPL ratio remained unchanged at 0.9%, with allowance coverage declining to 156% (1Q25: 162%).
Management lowered its FY25F NIM guidance and declared a lower interim dividend. Management trimmed its net interest income guidance by a mid-single-digit percentage, now guiding it to be in in the range of 1.90-1.95% (previous: NIM in the region of 2%) as the impact of lower NIM more than offset volume growth. Management continues to guide for mid-single-digit loan growth, cost-to-income ratio in low 40s, and credit costs in the range of 20-25 bps. Meanwhile, dividend payout ratio guidance was revised slightly to 60% total dividend payout ratio for full year 2025 plus share buybacks (previous: 60% total dividend payout ratio, combined with share buybacks as part of the SGD2.5bn capital return over a two-year period). OCBC has declared an interim dividend of 41Scts/share (1H24: 44Scts/share) on lower EPS as dividend payout ratio was 50% for 1H25.
Takeaways from management briefing:
NIM: Exit NIM was 1.88%. Of the 12bps q/q decline, two-thirds of decline in loan yield was due to HIBOR decline while one-third was driven by SGD rates decline. Post-2Q25, management believes there is good momentum from deposit rate cuts and expects upwards inflexion hereon. Management expects SORA and HIBOR to be steady at current levels and hold on to their three-rate cuts assumption, based on historical transmissions of 100% to HIBOR and 50-60% to SORA. Based on these assumptions, management believes that 3Q/4Q25 NIM will be above exit NIM of 1.88% and likely towards the higher end of NIM guidance range of 1.90-1.95%. Management is looking towards a mid-single-digit percentage drop in FY25F NII. Based on 100bps decline in rates across four major currencies, 12bps NIM decline is expected.
Loans: Close to half of the loan book is in SGD and HKD. 80% of SGD loans and nearly all of HKD loans are on floating rate. Bright spots for loan growth include housing loans, infrastructure, data centre, transportation. First order impact from trade tariffs affects 3% of loan book (unchanged from 1Q25). Two-thirds of loan book are in strong domestic sectors. Further stress tests show that portfolio remains resilient. Sustainable loans grew +19% y/y to SGD53bn, representing 16% of the loan book. Management expects 2H25 loan growth to continue at 1H’s pace.
Asset quality: New NPA formation was higher q/q at SGD256mn (last four quarters averaged SGD321mn per quarter) as there is pickup in NPL in consumer/private bank space, relating to some loans in private banks. Loans spread across a few clients and management is confident on recovering a lot of these loans. Overall CRE exposure has come down as management has been downgrading cases and increasing ECL2+3. Management is comfortable with the portfolio as long as valuation does not decline.
Non-interest income: Wealth net new money at SGD4bn (1Q25: SGD5bn). Charging bancassurance fees on GEH is one of the options on the table. The Bank of Singapore saw broad-based growth, though leverage is muted as clients fear drop in market. BOS continues to significantly grow its fee-based business. The consumer business saw good demand in treasury, bonds, structured products, and new bancassurance products with GEH and good loan growth given low interest rates. Investment activity as a percentage of AUM across all segments is now at 60%.
Capital and dividends, GEH: Management remains interested to grow inorganically and organically with two criteria for inorganic acquisition: 1) Fits OCBC’s strategy 2) at a reasonable cost. Management is satisfied with outcome of increasing economic interest with GEH and there is no imminent plan for another round of offers. On dividends, management believes we should not rule out flat DPS y/y, as OCBC has history of paying above its dividend payout ratio policy, while interim dividend has been at 50%. Management will assess capital needs at year-end.
Quarterly / Interim Income Statement (SGD mn)
FY Dec | 2Q2024 | 1Q2025 | 2Q2025 | % chg y/y | % chg q/q |
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Net Interest Income | 2,430 | 2,345 | 2,283 | (6.0) | (2.6) |
Non-Interest Income | 1,199 | 1,310 | 1,264 | 5.4 | (3.5) |
Operating Income | 3,629 | 3,655 | 3,547 | (2.3) | (3.0) |
Operating Expenses | (1,395) | (1,420) | (1,395) | 0.0 | (1.8) |
Pre-Provision Profit | 2,234 | 2,235 | 2,152 | (3.7) | (3.7) |
Provisions | (144) | (212) | (114) | (20.8) | (46.2) |
Associates | 243 | 274 | 263 | 8.2 | (4.0) |
Exceptionals | 0.0 | 0.0 | 0.0 | - | - |
Pretax Profit | 2,333 | 2,297 | 2,301 | (1.4) | 0.2 |
Taxation | (389) | (414) | (485) | 24.7 | 17.1 |
Minority Interests | 0.0 | 0.0 | 0.0 | - | - |
Net Profit | 1,944 | 1,883 | 1,816 | (6.6) | (3.6) |
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Growth (%) |
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Net Interest Income Gth | (0.3) | (4.5) | (2.6) |
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Net Profit Gth | (1.9) | 11.6 | (3.6) |
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Key ratio (%) |
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NIM | 2.3 | 2.2 | 2.2 |
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NPL ratio | 0.9 | 0.9 | 0.9 |
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Loan-to deposit | 81.1 | 78.9 | 78.7 |
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Cost-to-income | 37.8 | 38.7 | 39.2 |
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Total CAR | 17.9 | 20.2 | 19.6 |
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Source of all data: Company, DBS
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