OCBC Q2 profit drops 7% as interest rates fall; CEO flags tariff headwinds

SINGAPORE - OCBC Bank posted a 7 per cent fall in earnings for the second quarter, as declining interest rates weighed on net interest income.

Net profit for the three months to June 30 was $1.82 billion, down from $1.94 billion a year earlier. Still, the figure beat the $1.79 billion forecast in a Bloomberg poll.

The bank also declared an interim dividend of 41 cents per share, down from 44 cents a year ago. The interim dividend payout will amount to $1.84 billion, representing a payout ratio of 50 per cent.

At a results briefing on Aug 1, outgoing chief executive officer Helen Wong said the first-half performance benefited from better-than-expected growth across the region and front-loading activities ahead of US tariffs.

However, geopolitical tensions and the potential inflationary impact from tariff shocks continue to cloud the operating environment in the second half, she said.

The bank forecasts global and regional growth to slow in the second half-year, but expects its strong balance sheet and capital position to navigate volatilities.

It maintains a long-term positive on regional growth, as trade investment and wealth flows across Asean and Greater China continue. “We still see a pocket of growth opportunity in the region and our key markets,” said Ms Wong.

OCBC expects its 2025 net interest income to be lower by a mid-single-digit percentage.

It maintained most of its 2025 financial targets, including mid-single-digit loan growth and credit costs in the range of 20 to 25 basis points. Net interest margin (NIM) is expected in the region of 1.9 per cent to 1.95 per cent, down from the region of 2 per cent previously.

Banks are seeing their NIMs squeezed with interest rates low or falling, as the difference between what they earn on loans and what they pay on deposits narrows.

Chief financial officer Goh Chin Yee noted that the NIM decline was largely due to the sharp fall in Singapore and Hong Kong interbank benchmark rates, adding that a reduction in loan yields outpaced the drop in deposit costs.

Close to half of OCBC’s loan book is denominated in Singapore dollars and Hong Kong dollars. About 80 per cent of its Singdollar loans and nearly all its Hong Kong dollar loans are on floating rates, she added.

Net interest income for the quarter fell 6 per cent year on year to $2.28 billion, as net interest margins dropped to 1.92 per cent from 2.2 per cent.

Non-interest income rose 5 per cent to $1.26 billion, lifted by a 24 per cent rise in fee income and 6 per cent increase in trading income, which more than offset lower insurance income.

Fee income trended higher over the last four quarters, led by continued growth momentum in wealth-related fees. Wealth management fee income surged 31.6 per cent to $279 million from a year earlier.

Return on equity declined to 12.3 per cent in the second quarter, from 14.2 per cent in the same period in 2024.

Customer loans rose 9 per cent year on year to $325 billion as at June 30. This was driven by housing loan growth in Singapore and higher non-trade corporate lending.

Deputy CEO Tan Teck Long, who will succeed Ms Wong after she retires on Dec 31, said loan growth remains healthy, led by the bank’s focus on industry sectors such as data centres and real estate, which derive their demand domestically or regionally.

While local businesses suffered from the sudden influx of China-made products, which sought other markets to offset US tariff impact, importers in Singapore benefit from cheaper goods, such as lower raw material costs for the construction industry, he said.

“For the next half of the year, we are still optimistic that we can continue our pace of loan growth, ending the year at about mid-single-digit growth as per our guidance,” he added.

Mr Tan said he helped build the bank’s China franchise and also understands the Asean region well. “I think I do have a very good insight on how to stay nimble and tap the right risk-reward relationship.”

He said Ms Wong has steered the company on the right track with the “One Group” strategy and added: “We are an integrated financial services group, so there are still a lot of synergies which can be reaped from working together in closer collaboration.”

OCBC said its non-performing loan ratio was unchanged at 0.9 per cent.

But the bank has set aside higher allowances of $326 million for the first half-year, up 4 per cent from $313 million a year ago, for non-impaired assets which include pre-emptive allowances for trade tariffs and macro uncertainties.

Ms Goh said the bank conducts ongoing reviews of the potential impact of trade tariffs on its loan book.

“We have assessed that trade tariffs have first-order impact of 3 per cent on our loan book and two-thirds of our loan book are the sectors with strong domestic focus. We further stress-tested our loan portfolio and assessed that our portfolio remained resilient.”

For the first half-year, OCBC’s net profit declined 6 per cent to $3.7 billion. Total income dipped 1 per cent, as a fall in net interest income from the peak level a year ago was mostly compensated by robust fee and trading income growth.

Earlier this week, OCBC subsidiary Great Eastern (GE) said shareholders will receive forms from July 29 to choose whether to take up non-voting shares or receive bonus ordinary shares, a move that will determine whether the insurer can resume trading.

The development comes after a proposed delisting resolution failed to pass at GE’s extraordinary general meeting. OCBC’s conditional exit offer of $30.15 per share also lapsed.

When asked about next steps should the trading resumption not happen, Ms Wong said the bank’s aim is to increase its stake in GE and support GE in resuming trading.

“We increased our stake in GE as we have planned... Nobody guarantees that you can achieve the listing because it is up to minority shareholders. But the whole point is we did increase so that means GE’s contribution to OCBC Group will be bigger going forward. We also said that the exit offer is to support GE to resolve the suspension.”

She said the next step is to wait for the outcome of the bonus issue. OCBC does not have any immediate plans to launch another exit offer, she added.

Those opting for non-voting shares are expected to respond by Aug 7.

Singapore’s second-largest lender kicked off local banks’ earnings season, with DBS and UOB slated to report on Aug 7.

Shares of all three banks lost earlier gains to close down on Aug 1. OCBC ended down 0.5 per cent at $16.79, while DBS dropped 0.65 per cent to $47.60 and UOB slipped 0.3 per cent to $36.07.