OCBC trims full-year NIM guidance; Q2 profit slips 7% to S$1.82 billion

[SINGAPORE] OCBC has lowered its target net interest margin (NIM) for FY2025 to a range of 1.9 to 1.95 per cent, down five to 10 basis points (bps) from an earlier range of around 2 per cent.

During the second quarter, “reduction in loan yields outpaced the drop in deposit costs”, said OCBC group chief financial officer Goh Chin Yee on Friday (Aug 1).

She was speaking at the bank’s second-quarter results briefing for the three months ended Jun 30, for which OCBC – the first of Singapore’s three local lenders to report earnings – posted a 7 per cent year-on-year decline in net profit to S$1.82 billion.

The drop was largely due to a 6 per cent fall in net interest income to S$2.28 billion, as NIM fell 28 bps to 1.92 per cent from 2.2 per cent a year ago.

On a quarter-on-quarter basis, NIM fell 12 bps. Most of this decline was attributed to a “sharp drop” in the Singapore Overnight Rate Average (Sora) and the Hong Kong Interbank Offered Rate (Hibor) over the quarter.

The one-month and three-month compounded Sora declined by 63 bps and 49 bps, respectively, while one-month and three-month Hibor fell more steeply by 289 bps and 215 bps.

About half of OCBC’s loan book is denominated in Singapore and Hong Kong dollars.

Around 80 per cent of its Singapore dollar loans and nearly all Hong Kong dollar loans are on floating rates.

As a result, the reduction in loan yields more than offset the drop in deposit costs, Goh noted.

In March, the lender announced a cut in the maximum interest rate for its flagship 360 Account to 6.3 per cent per annum on the first S$100,000, from 7.65 per cent. A further cut to 5.45 per cent took effect from Friday.

Looking ahead, Goh expects both Sora and Hibor to “stay steady” at current levels, with OCBC maintaining its assumption that the US Federal Reserve will cut rates three times for the rest of the year.

If those assumptions hold, the bank’s NIM is likely to come in “closer to the higher end” of its revised guidance range, she added.

OCBC posted an exit NIM of 1.88 per cent in June, and expects an “upward inflection” in the coming months as the deposit rate cuts flow through.

Dividend and capital return

The bank’s Q2 net profit of S$1.82 billion beat the S$1.79 billion consensus forecast in a Bloomberg poll of six analysts.

OCBC declared an interim dividend of S$0.41 per share, down from S$0.44 a year ago.

Group chief executive officer Helen Wong said that this was in line with the bank’s 50 per cent interim payout policy.

It “remains committed” to its 60 per cent total dividend payout target for FY2025, along with its S$2.5 billion two-year share buyback plan, she added.

Other full-year guidance also remained unchanged, including mid-single-digit loan growth and a cost-to-income ratio in the mid-40s.

Other business drivers

Non-interest income rose 5 per cent to S$1.26 billion, supported by a 24 per cent increase in fee income and a 6 per cent rise in trading income. These gains offset lower insurance income.

OCBC’s non-performing loan ratio held steady at 0.9 per cent. Total allowances fell to S$114 million in the quarter, from S$144 million a year ago.

For the first half of the year, the bank posted a 6 per cent decline in net profit to S$3.7 billion. Total income slipped 1 per cent to S$7.2 billion, from S$7.26 billion a year ago.

Net fee income rose 19 per cent year on year to S$1.13 billion in H1, supported by broad-based growth and increased customer activity.

Wealth management fees – which accounted for nearly half of net fee income – climbed 25 per cent, with gains across all wealth product channels.

Bloomberg Intelligence analysts Sarah Mahmud and Diksha Gera said that wealth-led fee income is expected to remain a key driver of revenue growth into 2026.

“Loan growth could moderate to a mid-single digit percentage with slower trade and exports after businesses front-loaded activities ahead of higher US tariffs” kicked in on Friday, they added.

Shares of OCBC closed S$0.08 or 0.5 per cent lower at S$16.79 on Friday, following the results announcement.