The strength of the result was anchored in the bank’s core banking operations, which generated a record profit of S$1.9 billion, an 8% increase from the same period last year. This improvement was driven by robust loan growth, resilient fee income, and continued momentum in customer flow trading. According to the bank, net interest income (NII), its primary revenue source, grew 4% to S$2.31 billion, the highest level in six quarters. This growth was supported by an increase in average assets, particularly in customer loans and high-quality non-commercial assets.
However, the expansion in lending volume came at a cost to margins. The net interest margin (NIM) contracted by 18 basis points to 1.66% in the third quarter, down from 1.84% a year earlier. This decline reflects a lower interest-rate environment, where the yield gains from increased loan books were partially offset by rising funding costs, particularly in the United States. Despite this margin pressure, the bank noted that higher interest rates in Singapore provided a partial offset to the global funding cost increases.
The most significant drag on profitability was the non-interest income segment, which fell 10% year-on-year to S$1.42 billion. This decline was primarily attributable to the insurance arm, Great Eastern Holdings, whose net profit plunged 72% to S$102.9 million. Great Eastern reported mark-to-market losses in its bond portfolio during the quarter, and the significant equity gains recorded in the second quarter did not repeat. Consequently, insurance income specifically dropped 37% year-on-year.
Despite the insurance weakness, the underlying business of Great Eastern remained resilient. New business embedded value rose 14% year-on-year, driven by more than 20% growth in agency and bancassurance channels in Singapore. Separately, the group’s fee income grew 8% year-on-year, supported by broad-based growth in wealth, loan, trade-related, and investment banking activities. Customer flow trading income also surged 29%, although non-customer flow trading and investment income swung to a S$15 million loss.
Asset quality remained stable, with the group’s non-performing loan (NPL) ratio easing to 0.8% from 0.9% in the prior year. Operating expenses remained unchanged year-on-year, while the share of results from associates expanded 19% to S$331 million.
Following the results, OCBC raised its full-year 2026 financial guidance. The bank now expects loan growth to be in the low double digits, up from its previous forecast of high-single-digit to low-double-digit growth. Additionally, the bank revised its outlook for credit costs downward to a range of 15 to 20 basis points, from the previously guided 25 to 30 basis points. Total income is expected to expand by at least a mid-single-digit percentage, with net interest income projected to be flat to a slight decline.
Group Chief Executive Officer Tan Teck Long cited geopolitical tensions and elevated inflation risks as key factors in the uncertain global outlook. He noted that near-term conditions would depend on the easing of energy prices linked to the conflict in the Middle East, while the bank is closely monitoring market conditions in Indonesia, a key market for its operations.
The strong performance in core banking suggests that OCBC’s domestic and regional lending strategies are effectively capitalizing on demand, even as global volatility impacts its investment-heavy insurance arm. The raised guidance indicates management confidence in the durability of the bank’s fee and loan income streams, despite the headwinds facing the insurance sector.
2 Comments