No longer is it feasible for commercial banks to focus on lending to customers and taking deposits from customers. Although the local banks are not as far along the non-interest income journey as the mega US banks, where earnings are boosted with investment banking, treasury and trading, the three local banks have expanded their non-interest income.
Shareholders who have held on to their OCBC shares over the past two to three decades in a buy-and-hold strategy will have benefitted, in particular in the past five years, since outgoing group CEO Helen Wong changed the dividend strategy of the banking group.
To give an idea of how much both OCBC and the banking sector have grown, OCBC’s net profit for FY2010 was $2.25 billion. In 1H2025, OCBC’s net profit stood at $3.7 billion, and in 2Q2025, it stood at $1.82 billion. OCBC’s total shareholder return in the past 15 years was a tad below 90% in terms of share price between the beginning of 2010 and Aug 1, while total shareholder return including dividends is around 260%.
The OCBC of 2025 has diversified its earnings base compared to 1932. Nonetheless, net interest income is an important earnings driver. In 2010, non-interest income accounted for 44.7% of total income, and in 1H2025, non-interest income accounted for 35.7% of total income. This is a testament to the volume growth of OCBC’s customers and business.
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In 2004, it consolidated Great Eastern Holdings via a share swap. In 2009, OCBC acquired ING Asia Private Bank. This move gave the group a wealth management business and was redesigned as Bank of Singapore, which became OCBC’s private banking arm. In 2014, OCBC made its most ambitious expansion by acquiring Wing Hang Bank in Hong Kong. In 2024, its Indonesian subsidiary, PT Bank OCBC NISP, acquired 99% of PT Bank Commonwealth with plans to acquire the remaining 1%.
In the short term, though, OCBC’s earnings are under pressure. The liquidity that flowed into Singapore following Donald Trump’s so-called Liberation Day caused Sora to decline from 3% on the first working day of the year in January to 1.84% on July 31. Banks are interest-rate sensitive.
On Aug 1, during OCBC’s results announcement and briefing, the impact of interest rates on net interest margin (NIM) took centre stage. In 2Q2025, OCBC’s NIM fell to 1.98% from 2.04% in 1Q2025 and 2.2% in 2Q2024. According to group CFO Goh Chin Yee, the exit yield at the end of 2Q2025 was 1.88%.
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The main factor was the drop in loan yields, which impacted group NIM by 17 basis points. This was largely due to the sharp fall in the Singapore dollar (SGD) and Hong Kong dollar (HKD) benchmark rates during 2Q2025. Reduction in loan yields outpaced the drop in deposit costs. “Close to half of our loan book is denominated in SGD and HKD. About 80% of our single-dollar loans are on floating rates, and nearly all our HKD loans are on floating rates,” Goh says.
She notes that during the second quarter, Sora dropped more than 50 basis points (bps), and Hibor’s fall was even sharper. One-month and three-month Hibor rates were down around 300 bps and 222 bps, respectively.
“Strategic liquidity deployment into high-quality assets during our first quarter also led to a small drag on NIM about two basis points. “We expect upward inflection from the exit NIM, as we see, flow through from ongoing deposit rate cuts. As at end-June mean sensitivity based on a 100 basis point drop in rates across our four major currencies, on SGD, Malaysian ringgit, HKD and USD, was around 12 bps on an annualised basis for the remainder of this year,” Goh elaborates.
Around a one bp drop translates into around $48 million of net interest income. Depending on assumptions, loan growth needs to be around $2 billion of loans to offset that 1 basis point drop. “Having more customers so that we can grow the volume of business is key,” Goh says.
In 1H2025, net profit was $3.7 billion, 6% lower y-o-y. Net interest income fell 5% y-o-y to $4.63 billion, as a compression in NIM more than offset an 8% y-o-y rise in average asset volume. Non-interest income grew 8% y-o-y to $2.57 billion, buoyed by a rise in fee and trading income.
Goh says the group’s three business pillars of banking, Wealth Management and Insurance provide diversified earnings. “We are seeing results of our focused investment in wealth management contributing 37% to our group total income. Our 1H2025 net new money inflows were $9 billion, with $4 billion in 2Q2025.”
“For fees, it really depends on how much we generate out of $1 of loans. The demand for hedging has risen, whether it is foreign exchange effects or interest rates. This is something I see good prospect. The world has become more uncertain. As a bank, this is the advice that helps customers manage and protect their businesses as well as helping us generate more fee and advisory income,” Goh says during an exclusive interview with The Edge Singapore in June.
In the last three years, the interest rate cycle enabled the bank to grow net interest income (NII) and build up a certain level of capital. The bank also started investing in AI, digital and other technologies. “Now we are approaching a situation where we are reaping the benefits of the investments in terms of efficiency, productivity gain, and being able to do more without growing headcount is the key going forward because of the slowdown in NII growth,” Goh said.
Being able to grow fee income, in particular wealth management fees, is important to make up for the slowdown in NII growth. As Goh sees it, wealth management prospects depend on the state of the economy. If the economy slows, businesses will invest less, consumers will buy less, exporters will export less, trade income will fall and investors will also invest less. For banks, earnings growth is dependent on economic conditions, and it is the economy that will drive banks, including OCBC, to the next level of growth.
