The second quarter could also see “solid” momentum in loan growth, underpinned by housing loans, as well as loans towards sectors such as telecommunications, media and technology, and logistics. That said, the team is waiting for the bank to hold its results briefing to see if the run rate for the first half of the year is strong enough to prompt an upgrade by management. In 1QFY2026, OCBC’s loans grew by 8% y-o-y and 7% y-o-y on an annualised basis, both ahead of its mid-single-digit guidance.
Pressure on OCBC’s y-o-y net interest margin (NIM) could also ease with the moderated y-o-y delta in the benchmark rate, coupled with the cut to OCBC’s flagship deposit rate in May. That said, the team expects the bank’s net interest income (NII) to continue to decline y-o-y, although the drop is likely to moderate further versus the mid- to high single digit decline posted in the past four quarters.
On the non-interest income front, OCBC is expected to see a “healthy” y-o-y increase, which would also underpin growth in operating income.
“We understand that the wealth momentum has been sustained amid the continued deployment of funds by customers across all wealth segments – which is positive for both wealth fees and customer flow trading income,” says the team.
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“As for other fee line items, these look stable q-o-q,” it adds.
The recent new regulation introduced by the Chinese authorities on outbound investments is also unlikely to materially impact OCBC’s business, as it mainly taps the offshore market, says the team. The bank, instead, believes there is room to “further expand and build up its presence in the affluent space in Hong Kong”, says RHB.
Finally, the team believes OCBC’s asset quality remains “stable”. The bank has not observed any material developments during the quarter and its credit cost guidance of 20 basis points (bps) to 25 bps should remain “intact”.
Its LLC of 149% includes tariff overlays that were built up last year and provision buffers for the Middle East conflict. This is “unlikely to be reversed” in the upcoming results. The bank also believes recent developments around hte commercial real estate sector indicate that the situation is “stabilising”.
For FY2026, RHB estimates OCBC’s reported net profit to come in at $7.7 billion representing a net profit growth of 3.3%.
Its higher target price is based on a lower cost of equity (COE) estimate and an unchanged environmental, social and governance (ESG) premium of 2%.
Shares in OCBC closed at an all-time high of $27.43 on July 10, 38.19% up year to date.
