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Oversea-Chinese Banking Corporation Limited 1H25: Key Messages and Financial Targets · Investor Exchange

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  Music.
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  Through piles of sources, articles, reports, you name it, to bring you the absolute
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  key insights. Glad to be here.
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  Today, we're diving into OCBC's financial results for the first half of 2025.
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  Our mission, really unpack their performance, figure out the why behind the
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  numbers, and get a sense of their outlook.
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  Yeah, and it's a really fascinating set of results. It's more than just one bank, right?
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  It gives us a real snapshot of how a major player navigates this shifting global economic scene.
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  Definitely. You really see a mix of challenges, but also some clear strategic
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  strengths coming through in these documents we looked at.
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  It's a great way to view the whole financial sector right now.
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  Okay, so let's jump right in. Top line numbers, OCBC's net profit for 1H25, S3.70 billion dollars.
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  Now that's actually down 6% from the record they hit in the first half of 24,
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  which was S3.93 billion dollars, a 6% dip from a record.
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  It's noticeable. So what's the story there? Was that expected?
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  Well, the main reason pretty clearly was a squeeze on their net interest income.
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  NII, as we call it. That's basically the bread and butter, right?
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  Lending income minus deposit costs. It fell 5% to S4.63 billion dollars.
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  And why was that? It really came down to their net interest margin, the NIE.
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  That tightened by 25 basis points, landing at 1.98%. 25 basis points.
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  That's a quarter of a percent. That sounds like quite a significant hit to their
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  core lending profit. It is, yeah.
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  And it's interesting because even though their average asset volume went up
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  by 8%, meaning they had more loans out there. Right, more business volume. Exactly.
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  But that pressure from the lower interest rate environment basically wiped out
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  the benefit of that extra volume. It really shows how falling rates can,
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  you know, pinch banks, even if they're growing loans.
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  So the money they were making on those assets, the yields, dropped faster than
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  what they were paying out on deposits.
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  You got it. The drop in asset yields outpaced the decrease in funding costs.
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  And if you look just at the second quarter, the in-in tightened even more, down to 1.92%. Okay.
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  And a lot of that was tied to repricing loans in Singapore dollars and Hong
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  Kong dollars as those benchmark rates came down.
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  So this really forces banks to think differently, doesn't it?
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  How do you adapt when rates stay low?
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  Absolutely. It puts a huge focus on finding other ways to make money,
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  like we saw with OCBC really pushing diversified income.
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  It hints at a future where maybe traditional lending isn't quite the king it
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  used to be. OK, but here's the really interesting part, I think.
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  Despite that NII pressure we just talked about, OCBC's total income was only down 1%, just 1%. Yeah.
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  How did they manage that? What was the counterbalance?
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  Well, this is where that diversification strategy really shines.
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  Their non-interest income actually surged up 8% year on year,
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  hitting as $2.57 billion.
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  Wow. Okay. And what's driving that is strong growth in both fee income and trading income.
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  That really cushioned the blow from the lower rates. It shows they've built
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  resilience, you know, not just relying on lending. Let's dig into those fee numbers.
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  Net fee income up a really strong 19 percent to S1.13 billion dollars.
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  The sources mentioned it was pretty broad based, more customer activity.
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  But inside that, wealth management fees, which are almost half their total fee
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  income, they jumped 25 percent. That's huge.
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  What's behind that surge? Is it just market conditions or something OCBC is
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  doing strategically? It's likely a bit of both, but that 25% growth,
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  and they mentioned it was across all product channels, that really suggests
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  customers weren't just sitting on cash.
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  They were actively putting money into investments. Right.
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  Engaging with the bank more. Exactly. It points to OCBC succeeding in that wealth advisory space.
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  And you mentioned trading income, too. That was also up 6% to $771 million,
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  mostly from customer-related treasury flows, helping wealth clients and corporates with their needs.
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  Shows they can handle complex stuff for clients. But hang on.
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  What about their insurance arm, Great Eastern Holdings, GEH?
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  The income from GEH actually went down 9%. That seems to cut against the trend. Oh, good point.
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  Yes, the reported income from GEH did dip to $532 million, and that was largely
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  due to what they call mark-to-market impacts.
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  Basically how the value of their investments fluctuated day to day because of
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  lower interest rates and changes in private equity valuations.
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  It's more of an accounting impact than an underlying business problem.
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  Okay, so look beyond the headline number. Exactly. Because if you look deeper,
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  their new business embedded value, that's NBEV, essentially the future profit
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  they expect from new policies sold, that actually jumped 16% to $717 million.
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  And crucially, the profitability of that new business, the NBEV margin,
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  nearly doubled, went from 28% to 44.7%. Wow, that's a big shift.
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  It tells you they're selling a better, more profitable mix of insurance products.
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  Not just more volume, but smarter volume.
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  And actually, GEH's overall profit contribution to OCBC's bottom line still
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  rose 5%, thanks to good investment returns in their own funds and OCBC owning
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  a bigger slice of GEH now.
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  So even with that headline dip, the insurance side still provided a cushion
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  and showed underlying strength. Right.
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  So they managed the revenue side through that diversification.
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  What about keeping a lid on costs and making sure the loan book is healthy?
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  That's the other side of the coin. Absolutely critical.
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  And they did well here, too. Expenses were kept under tight control,
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  up only 3% overall to S2.80 billion dollars. OK.
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  Now, staff costs were up 4%, but that makes sense, right? Yep.
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  Annual salary increases, plus higher bonuses tied to that good performance in
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  areas like wealth management.
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  And tech spending, they mentioned that. Yeah, they continue to invest in tech,
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  upgrading systems across different markets.
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  But despite all that the pay rises, the tech spend, their cost to income ratio
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  stayed impressively low.
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  Below 40%. Came in at 38.9%. That is pretty disciplined, especially with ongoing
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  tech investment. Shows good operational grip.
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  Definitely. All right, let's shift to the balance sheet itself.
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  The core of the bank. Loans and deposits.
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  How did those look? Pretty healthy growth on both sides. Customer loans grew
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  9% year-on-year, reaching $325 billion.
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  What kind of loans were growing? It was driven by a few key areas.
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  Housing loans in Singapore were strong and also more corporate lending,
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  but specifically non-trade related stuff.
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  Infrastructural projects, data centers, transportation, big long-term investments.
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  Interesting. And what really stood out was sustainable financing.
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  Those loans jumped 19% to $53.1 billion.
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  That's now 16% of their entire loan book.
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  16%. That's significant. That's clearly a strategic focus area.
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  Oh, absolutely. It's a huge growth area.
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  And on the other side, deposits were also up strongly, 10% growth to $407 billion.
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  A lot of that came from current and savings accounts, Haysa.
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  Cheaper funding for the bank. Exactly. It pushed their KSAT ratio up near 50%,
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  which is great for keeping funding costs stable and low.
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  And asset quality. Any signs of trouble there, given all the talk about macroeconomic uncertainty?
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  Any red flags? No. Asset quality looked really sound.
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  That's vital. The non-performing loan ratio, the MPL ratio didn't budge,
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  stayed flat at 0.9%. Very stable.
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  And their coverage for those MPLs is really strong, 156%, meaning they've set
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  aside $1.56 in provisions for every S1 dollar of loans they currently classify as non-performing.
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  Very conservative. So they're well cushioned against potential losses.
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  Very much so. Now, total allowances did tick up slightly by 4% to S326 million. But here's the key.
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  Most of that increase was extra provisions set aside for loans that are not
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  actually impaired yet. Just being cautious.
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  Exactly. They specifically called out increased macroeconomic uncertainties.
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  So it's prude management building buffers just in case things get tougher.
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  And capital, the ultimate buffer against shocks. How are they looking there? Rock solid.
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  Their main capital measure, the common equity tier one or CET one ratio,
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  was sitting at 17.0 percent. Which is well above what regulators require. Oh, yeah.
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  Well above the minimums. It shows they have a really strong buffer to absorb
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  any potential shocks and also to support future growth.
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  It sends a strong signal of stability to the market.
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  Right. So for our listeners who might be shareholders or just interested observers,
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  what does this all boil down to in terms of returns and the path ahead?
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  Dividends. Good question.
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  OCBC declared an interim dividend of 41 cents per share for this first half.
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  That works out to a 50% payout ratio of their.
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  Maybe more significant is they reaffirm this bigger capital return plan they
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  have. It's $2.5 billion in total.
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  How does that break down? It includes a special dividend, which will be 10%
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  of their full year 2025 profit, plus ongoing share buybacks over two years.
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  Add it all up, and they're targeting a total payout ratio dividends plus buybacks
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  of 60% for the full year 2025.
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  60%. That's a pretty strong commitment to returning capital to shareholders,
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  especially given the uncertain outlook. It really is. It signals confidence despite the headwinds.
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  And speaking of those headwinds, what is OCBC saying about the rest of 2025 and beyond?
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  Are they battening down the hatches? They're realistic, I'd say.
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  They expect the operating environment to stay challenging. They mentioned ongoing
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  worries about tariffs, geopolitical tensions.
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  And they expect global and regional growth might slow down a bit in the second
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  half of the year. So cautious, then.
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  Cautious, yes, but also confident in their own fundamentals.
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  They emphasize they're staying focused on their long-term strategy,
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  building on their strengths.
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  It's not panic, just clear-eyed realism combined with strategic focus.
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  Okay, so based on that view, did they give any specific financial targets for
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  the full year, numbers we can track? They did.
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  They expect net interest income,
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  the NII, to be down by a mid-single-digit percentage overall for the year.
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  That implies some continued pressure. And the NIM.
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  They guided for a NIM range of 1.90% to 1.95% for the full year.
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  So maybe stabilizing around current levels or slightly lower.
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  What about loan growth and costs?
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  They're projecting mid-single-digit loan growth, so continued expansion there.
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  Cost-to-income ratio expected in the low 40s, so maybe taking up slightly from
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  the H1 level, but still well-controlled.
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  And credit costs, the cost of potential bad loans, they see that in the 20 to 25 basis points range.
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  Still quite low historically. And the 60% total payout ratio target you mentioned.
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  Correct. That's the overall picture they painted for 2025.
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  Specific targets for people to watch. And we know the CEO, Helen Wong,
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  is stepping down at the end of this year with a successor taking over Jan 1st, 2026.
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  Did she offer any final thoughts on the results or the bank's direction?
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  Yeah, her message sounded very confident about the leadership transition,
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  reassuring for continuity.
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  She really highlighted the focus on getting more synergies, more value from
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  within the whole OCBC group. Makes sense.
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  And she doubled down on the drive to be a top wealth management player in the
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  region, you know, supporting customers through different cycles and grabbing
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  those growth opportunities.
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  So reinforcing that strategic direction we saw in the numbers.
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  Absolutely. It ties it all together, the diversification, the wealth focus.
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  It's presented as a deliberate long-term strategy, not just a reaction to recent rate moves.
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  So, wrapping this up, you've heard the story of OCBC's first half of 2025.
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  They definitely navigated a tricky environment. They used that diversified business
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  model, especially the strength in wealth management, and their solid balance
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  sheet to manage the squeeze on interest income.
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  They kept growing loans, particularly in strategic areas like sustainable finance,
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  while keeping costs and risks under control.
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  It really is a clear example, isn't it? How having diverse income streams and
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  just strong financial health can help a big bank ride out these macroeconomic
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  storms shows real adaptability. Indeed.
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  It gives us a fascinating glimpse into how banking might be evolving in response
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  to these persistent challenges.
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  Which leaves us with a question for you to think about. As OCBC and likely other
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  banks continue to lean into areas like wealth management and sustainable finance,
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  what does that tell us about the future shape of banking in this volatile global economy?
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  And maybe more importantly, how might that changing landscape affect all of
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  us down the road? Something to mull over.