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OCBC Q3 2025 Profit Saved By Wealth Management · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome back to the Deep Dive. Today we are taking a close look at the recent
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  OCBC 3Q25 financial results.
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  We've gone through the CEO presentation, the press release, all the highlights.
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  And our mission really is to decode what feels like a bit of a financial puzzle
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  at the heart of these results. It really is.
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  Because you look at the headline number, OCBC's 3Q25 net profit came in at S1.98 billion dollars.
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  A huge number. It's the single highest net profit they've reported in the last five quarters.
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  So you're thinking, OK, phenomenal performance. A home run, right. But here's the twist.
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  When you compare it to the same quarter last year, the result was,
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  well, it was completely unchanged.
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  Flat, just dead flat year on year.
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  Yeah. And that flat line is the central tension of the whole quarter.
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  How does that even happen? Hit up five quarter high, but show zero growth.
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  It reveals a pretty significant shift in the underlying financial engine.
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  To really understand this resilience, you know, why they didn't buckle,
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  we have to look past that top line number.
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  We have to examine these two opposing forces at play.
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  The moderation of their traditional net interest income, or NII.
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  Right, the lending income. Exactly.
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  Versus the explosive, almost compensatory growth in non-interest income.
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  So this deep dive will analyze those drivers, check on asset stability,
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  and then see what management is planning for 2025.
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  Okay, let's unpack that. If net profit was the highest in five quarters,
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  but the NII side was under pressure, it means the non-two side of the house
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  had to dramatically overperform just to make up the difference.
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  So where did that game-saving growth come from?
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  It was overwhelmingly the non-interest income segment.
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  This is the big financial story here. It really proves the value of their diversified
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  franchise. So what are the numbers?
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  Nantuhid hit a new quarterly record of S1.57 billion dollars.
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  That's a powerful surge up 24% quarter-on-quarter and 15% year-on-year. Wow.
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  This growth was the single engine that entirely cushioned that decline in NII.
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  That's why they could report stable profits. And if you dig into that number,
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  where's the strength coming from? The strength is very visible in their wealth management business.
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  This was the strongest component by far.
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  WMVs grew an extraordinary 34% year-on-year.
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  34%. And 35% quarter-on-quarter to a record S-683 million dollars.
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  A 35% jump from just last quarter is huge. What's driving that kind of acceleration in client activity?
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  Well, the documents all point to sustained net new money inflows.
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  And that's from all their wealth segments. Okay.
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  So you put a little context on that. It suggests OCBC is successfully capitalizing
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  on global market volatility.
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  They're likely attracting funds from other institutions or maybe just getting
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  much better at cross-selling to their existing customers. And that momentum is real. It's tangible.
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  These inflows push their overall banking assets under management,
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  their AUM, to a record S336 billion dollars.
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  Which is up, what, year on year? Up 18% year on year.
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  The sheer scale of assets they manage now, it just secures this massive stream
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  of recurring fee income, even if the markets themselves start to moderate.
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  So wealth management is the recurring fee driver. What about the more volatile
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  parts like trading and insurance?
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  They were equally strong. It really reflects some excellent market execution on their part.
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  Trading income was very robust, jumping 38% quarter-on-quarter to $518 million.
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  And where did that boost come from? Primarily from stronger customer flow treasury income.
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  So they're just making more money executing trades and managing risk for their
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  clients. And that's alongside improved performance in their own investment portfolio.
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  Okay. And the insurance arm? Great Eastern Holdings, GEH, also contributed significantly.
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  Income from GEH rose 38 percent quarter on quarter to S311 million dollars. Also 38 percent.
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  Yeah, a lot of that was due to better investment performance of the insurance funds.
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  And another key metric, the new business embedded value or NBEV.
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  The profitability of new policies.
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  Right. That grew 9 percent to S182 million dollars.
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  It's just a very broad, very powerful growth picture for every non-interest
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  source they have. Okay, so this is where it gets really interesting for me.
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  If non-interest income basically saved the day, that means the traditional engine
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  of the bank, the lending side, must have really stalled.
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  So let's turn to net interest income. Why did it decline when their total assets
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  were actually growing? You've just nailed the crucial tradeoff.
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  This is that interest rate headwind in action.
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  NII fell 2% quarter-on-quarter, and more importantly, 9% year-on-year.
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  Down to what? Down to S, $2.23 billion.
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  And the main culprit wasn't volume, it was pricing.
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  Their net interest margin, their NI, it compressed by 8 basis points quarter-on-quarter,
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  landing at 1.84%. Okay, so just to explain in Simply for Everyone Listening,
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  that's basically the profit margin a bank makes on its loans. Exactly.
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  And the documents are clear. This compression happened because the downward
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  repricing of their loans.
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  Meaning cutting interest rates for borrowers. Right. Following those benchmark
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  rate declines in Singapore dollars and other currencies.
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  That's happening faster than they can reduce their deposit costs.
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  So they have to give borrowers better rates faster than they can get cheaper money from savers.
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  That hurts. It hits the margins hard.
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  So to counteract this, the bank is focusing heavily on just growing the volume
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  of its assets to try and sustain NII. even if the margin on each individual loan is a bit thinner.
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  Right. A strategy of resilience through diversification and volume.
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  But that naturally brings up questions about risk. Of course.
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  If NII is falling and they're relying more on, you know, potentially volatile
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  trading and fee income while pushing for loan volume, does that add pressure
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  to asset quality? Let's check those stability numbers.
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  The stability of their asset quality is a major point of confidence.
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  Management really highlighted this. The non-performing loan or NPL ratio.
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  Ratio has remained perfectly stable at 0.9% for six straight quarters.
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  Six quarters. That's impressive.
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  That kind of consistency says a lot about their underwriting discipline,
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  even as they're expanding the loan book.
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  And what's more, the total non-performing assets coverage ratio was very robust
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  at 160%. Meaning for every dollar of bad loans, they have a $1.60 set aside.
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  Exactly. That just screams stability and prudence. Okay, that NPL ratio sounds great.
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  But let's pause on the allowances for a second. We saw that total allowances
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  for 3Q25 did rise to us $139 million.
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  They did? That's up 21% quarter-on-quarter, a 21% jump.
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  That sounds a bit more like panic than prudence. Why should we believe their
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  claims of stable quality when they're setting aside that much more money?
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  That's a fair challenge to the narrative. But the documentation notes the rise
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  was primarily for higher allowances on specific impaired assets.
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  So not a broad systemic problem.
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  No, it seems to be a few larger client issues that needed recognition.
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  And critically, if you look at the nine-month period overall,
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  total allowances were actually 4% lower year on year.
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  Ah, okay, so that context is vital. Right. So while 3Q had a spike for specific
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  issues, the overarching trend suggests they aren't seeing dramatically elevated
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  risk across the entire portfolio.
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  Credit costs for the quarter were contained at just 16 basis points.
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  Okay, that makes sense. Now, what about the balance sheet growth that's supposed
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  to offset the NM pressure? Where's the loan volume coming from?
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  Customer loans grew a healthy 7% year-on-year, up to $327 billion.
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  And the growth was broad-based across both consumer and corporate loans.
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  Anything specific stand out. Yeah, a fascinating little detail they pointed
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  out was the transport, storage, and communication sector.
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  That sector was a key driver of the increase, which suggests they're really
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  engaging in regional trade finance and infrastructure investments.
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  It lines up with their broader strategic focus on Asian connectivity.
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  And what's funding all this growth? That's the other key part of the story.
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  You need cheap, stable funding to expand.
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  Customer deposits grew 11% year on year. And what kind of deposits?
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  Crucially, case deposits drove this.
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  Current account savings accounts, that's the bank's cheapest funding source. Right.
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  And that pushed the cast-off ratio up to 50.3%. Managing that funding cost is
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  absolutely essential when your NIM is under pressure.
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  On top of all this, their capital position is still extremely solid.
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  What's the CET1 ratio? The transitional CET1 capital adequacy ratio,
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  their core capital strength, is very high at 16.9%. That's a good cushion.
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  Okay, let's move to the last piece, the operational side.
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  Growth, especially in tech and staffing, it always costs money.
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  Operating expenses were up 9% quarter-on-quarter to $1.52 billion.
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  Where did that money go, and what did it do to their efficiency ratio?
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  The rise was pretty concentrated in two areas. First, increased staff costs,
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  probably annual salary adjustments, hiring in strategic areas like wealth and tech. And the second?
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  Continued robust investments in technology. They need that infrastructure to
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  support their digital transformation.
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  And these necessary investments pushed their cost-to-income ratio, the CIR.
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  Their efficiency measure. Right. It pushed it up slightly to 40.0% for the quarter.
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  And what about for the year so far?
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  Well, management was keen to emphasize that despite the 3Q spike,
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  the CIR for the first nine months stood a bit better at 39.3%.
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  It underscores a focus on cost discipline over the medium term.
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  The investments are clearly forward-looking. So a quarter defined by a successful,
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  if high cost, pivot, what does this all mean for the future?
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  CEO Helen Wong said the bank is primed for future growth.
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  But given the market volatility, let's look at the official 2025 targets they shared.
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  Are they aggressive or are they being cautious?
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  The targets reflect a very cautious recognition of the macro environment we've
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  been talking about, especially that pressure on lending. So what are they guiding for?
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  For 2025, they expect net interest income to be lower by a mid-to-high single-digit
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  percentage, with NEM guided to land around 1.90%. And loan growth?
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  They're targeting mid-single-digit loan growth. Again, that emphasizes the volume
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  strategy to offset the margin compression. Okay, what about costs?
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  The CIR is guided to be in the low 40s, so a bit higher than the nine-month
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  figure, which factors in that continued investment.
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  Credit costs are targeted slightly higher, around 20 basis points,
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  reflecting some anticipated normalization. And for shareholders?
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  They reiterated their commitment there. A 60% total dividend payout ratio and
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  ongoing share buybacks.
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  So if we connect this to the bigger picture, what are the specific global risks
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  that are making Management Guide for lower NII growth?
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  They anticipate a highly volatile operating environment.
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  They specifically mentioned evolving trade policies and the ongoing geopolitical
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  landscape as major risks. So they expect a slowdown. That's right.
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  Economic growth across their key markets is expected to decelerate in the near term.
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  That anticipated slowdown is really what underpins the cautious outlook for
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  traditional interest income.
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  But to counter that caution, they also pointed to specific long-term opportunities
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  they're banking on, right?
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  Precisely. They still have very positive views on key structural trends that
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  are, you know, sort of independent of any short-term slowdown.
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  Like what? Major opportunities in regional supply chain resilience,
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  which explains that loan growth in transport and storage.
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  Then there's the massive push toward energy transition and green finance.
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  And, of course, continued digitalization across Asia. So they believe their
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  fundamentals are strong enough to ride those waves. That's the bet.
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  They believe their diversified business positions them to drive resilient performance
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  by tapping into these long-term trends, despite the near-term headwinds.
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  Which brings us to the end of this deep dive. If we synthesize the key takeaway,
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  it feels like OCBC successfully pivoted in 3Key25.
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  I'd agree with that. They were faced with this compression in their traditional
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  lending income because of softer interest rates. And they cleverly leveraged
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  their diversified franchise, especially those high-performing wealth management
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  and trading divisions, to achieve stability.
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  That's what got them to the highest quarterly earnings in five quarters.
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  It was the non-interest income segment that delivered the stability.
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  It saved the quarter, you could say. It did. But the execution going forward is critical.
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  Given the stated volatility and the economic deceleration outlook for 2025.
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  We know they need that mid-single-digit loan growth.
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  Right. And if we look at their strategic investments, sustainable financing
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  loans already account for S-55 billion dollars, which is 17 percent of their
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  total customer loan book. That's a significant chump already.
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  It is. And it raises a really important question for their future performance.
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  Just how aggressively and successfully must these focused long-term opportunity
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  areas like green finance and supply chains contribute to revenue to meet that
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  ambitious loan growth target if the global economy is, in fact, slowing down?
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  A question that puts the pressure squarely on their strategic transition.
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  Thank you for joining us on the Deep Dive. We hope this gave you a sharp,
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  thorough insight into the OCBC 3Q25 results.