RHB expects net interest income to post a "slight to moderate" decline in 2026 as guided, due to NIM pressure. On the other hand, continued asset growth from strong liquidity flows will provide some cushion.
Loan growth continues to be driven by OCBC’s preferred segments and sectors such as renewables and tech, media & telecoms. Having said so, with the Middle East conflict, clients could take a wait-and-see stance and delay drawdowns, according to RHB, citing OCBC.
Meanwhile, the bank has minimal exposure to the Middle East, with just 2-3% of total loans. Having said so, visibility on second and third-order impacts is low due to the various scenarios that could pan out.
"So far, management said it is still too early for downgrades and, hence, there have been no specific provisions relating to the Middle East," says RHB.
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In line with seasonal trends and continued liquidity inflows, OCBC is set to see a q-o-q pick up in wealth fees. The bank has seen some Middle East money come in, but the amount is small, says RHB.
Meanwhile, OCBC remains "watchful" over the commercial real estate space, and this is mainly on the mid-tier segment in North Asia while its US CRE exposure has been stable.
OCBC does not have any direct exposure to the private credit space but did not discount the possibility it could have some minor indirect exposure via clients.
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OCBC, according to RHB, has also reiterated that it will complete its $2.5 billion capital return plan in FY2026. Of this amount, $1.5 billion had been returned via special dividends in FY2024 and FY2025. Of the remaining $1 billion set aside for share buybacks, some $780 million remains unutilised.
"If it is unable to fully utilise this for buybacks, OCBC will return the funds to shareholders via special dividends," says RHB.
OCBC shares closed at $21.71, down 0.41% for the day but up 9.37% year to date.
