OCBC: 1Q25 revenue and net profit beat consensus
Related Stories
- 1Q25 net profit beat consensus, as strong non-interest income growth offset decline in net interest income
- NIM decline accelerated from 4Q24 to 11bps q/q
- Management maintained FY25F guidance and reaffirmed its commitment to capital management plans
- Maintain HOLD, TP SGD14.40
1Q25 revenue and net profit beat consensus. OCBC reported 1Q25 revenue of SGD3,655mn (+1% y/y, +7% q/q), while net profit came in at SGD1,883mn (–5% y/y, +12% q/q). Operating expenses grew 5% y/y, declining 9% q/q to SGD1,415mn, normalising from the previous quarter’s spike, driven by higher investments incurred to support strategic initiatives and business growth. This resulted in a lower cost-to-income ratio of 38.7% (4Q24: 45.7%). Capital ratios remained robust, with CET1 at 17.6% (4Q24: 17.1%) while total capital adequacy ratio was 20.2% (4Q24: 19.7%). Net interest income was SGD2,345mn (-4% y/y, -4% q/q) as 3% average asset growth was more than offset by an 11bps decline in net interest margin (NIM) to 2.04% and the impact of a shorter quarter.
Higher non-interest income driven by broad-based growth. Non-interest income rose 10% y/y, 36% q/q to SGD1,310mn, underpinned by broad-based growth in wealth-related fees, trading income, and insurance income. Net fees and commissions came in at SGD546mn (+14% y/y, +6% q/q), driven by increased customer activity, which boosted wealth management, brokerage and fund management, as well as loan-related and investment banking fees. Trading income surged 7% y/y, 31% q/q to SGD396mn due to higher customer and non-customer treasury flows. GEH contributed SGD306mn (+6% y/y, +201% q/q), largely due to better underlying insurance performance in 1Q25 and the negative impact from changes in the medical insurance environment in GEH’s key markets recognised in 4Q24.
1Q25 saw higher credit costs of 24bps (4Q24: 21bps) driven by allowances for non-impaired assets. Total allowances of SGD212mn, 24bps (4Q24: SGD208mn, 21bps) included general allowances (stage 1+2): SGD118mn, 13bps (4Q24: SGD53mn, 6bps) and specific allowances (stage 3): SGD94mn, 11bps (4Q24: SGD155mn, 15bps). The NPL ratio remained unchanged at 0.9%, with allowance coverage improving to 162% (4Q24: 159%).
Management maintained its FY25F guidance and reaffirmed its commitment to capital management plans. Management expects NIM in the region to decline to 2% as the bank continues to anticipate three rate cuts in 2025. Management continues to project FY25F loan growth to be in the mid-single digits, with the cost-to-income ratio (CIR) in the low 40s and credit costs within the range of 20-25bps. Management has also reaffirmed its commitment to a 60% total dividend payout ratio and share buybacks as part of the SGD2.5bn capital return over a two-year period.
Takeaways from management briefing:
Tariffs impact: The first order of trade tariffs are estimated to directly impact ~3% of the bank’s loan portfolio, primarily in manufacturing, international logistics, and raw material trade within the corporate and commercial segments, as per management’s assessment. Around two-thirds of the loan book is exposed to sectors such as real estate, data centres, renewable energy, and domestic business, which are less affected. Trade loans account for 10% of the total loan book, while SME accounts for 9%.
NIM: Exit NIM was 2.03% (1Q25 NIM: 2.04%). For every 1bps change in the interest rate applicable to OCBC’s four major currencies, NII will be impacted by ~SGD4-5mn (previous: SGD4-5mn). Treasury market NIM saw less of an improvement relative to other banks, as the SGD12bn deposit inflows in 1Q25 were largely deployed into liquid assets, as per the group’s strategy. Following the Fed rate cut in 4Q24, deposit inflow was only 4% in November, vs. over 30% in December, resulting in commercial NIM compression.
Loans: Management noted that its FY25F loan growth guidance may face more headwinds. Most of OCBC’s loans, other than Singapore residential mortgages, are on floating rates. Fixed-rate loans are primarily concentrated in the Singapore mortgage portfolio, with around 20% of the Singapore loan book on fixed rates. Majority of USD and HKD loans are on floating rates, with only 3%-5% on fixed rates.
Non-interest income: Wealth management fees was driven by stronger client activity in private banking and unit trusts. Net new money in 1Q25 stood at SGD5bn, 60% of assets under management (AUM) deployed across all wealth channels. Investment activity to AUM in retail banking was ~40% while that in Bank of Singapore was slightly above 70%.
Asset quality: Management considers the 0.9% allowance for non-impaired performing loans appropriate and will continue monitoring. Hong Kong CRE remains an area that warrants closer attention as it continues to face pressure. OCBC has been actively engaging with clients to manage and reduce exposures, particularly within the medium-sized commercial segment. The remaining CRE exposure is largely to well-rated, larger corporate clients, which should translate to a minimal impact on overall NPL.
Acquisitions: The bank continues to see opportunities, including a recent proposal for an investment bank in Hong Kong. Any potential acquisition must align with the group’s positioning, client base compatibility, and integration capabilities. Management reiterated its preference for acquiring portfolios over entire entities.
Quarterly / Interim Income Statement (SGDmn)
FY Dec | 1Q2024 | 4Q2024 | 1Q2025 | % chg y/y | % chg q/q |
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Net Interest Income | 2,437 | 2,455 | 2,345 | (3.8) | (4.5) |
Non-Interest Income | 1,189 | 961 | 1,310 | 10.2 | 36.3 |
Operating Income | 3,626 | 3,416 | 3,655 | 0.8 | 7.0 |
Operating Expenses | (1,371) | (1,565) | (1,420) | 3.6 | (9.3) |
Pre-Provision Profit | 2,255 | 1,851 | 2,235 | (0.9) | 20.7 |
Provisions | (169) | (208) | (212) | 25.4 | 1.9 |
Associates | 255 | 245 | 274 | 7.5 | 11.8 |
Exceptionals | 0.0 | 0.0 | 0.0 | - | - |
Pretax Profit | 2,341 | 1,888 | 2,297 | (1.9) | 21.7 |
Taxation | (359) | (201) | (414) | 15.3 | 106.0 |
Minority Interests | 0.0 | 0.0 | 0.0 | - | - |
Net Profit | 1,982 | 1,687 | 1,883 | (5.0) | 11.6 |
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Growth (%) |
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Net Interest Income Gth | (1.0) | 0.9 | (4.5) |
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Net Profit Gth | 22.2 | (14.5) | 11.6 |
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Key ratio (%) |
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NIM | 2.3 | 2.2 | 2.2 |
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NPL ratio | 1.0 | 0.9 | 0.9 |
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Loan-to deposit | 80.3 | 80.7 | 78.9 |
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Cost-to-income | 37.1 | 45.7 | 38.7 |
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Total CAR | 18.4 | 19.7 | 20.2 |
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Source of all data: Company, DBS
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