OCBC 1Q26: The earnings outlook is improving as non-interest income takes the lead

Record non-interest income offsets continued margin pressure

OCBC delivered a strong 1Q26 earnings beat, supported by record income across multiple business segments and a continued expansion in non-interest income. Net profit rose 5% year-on-year and 13% quarter-on-quarter to SGD 1.97 billion, while total income reached a record SGD 3.83 billion, up 5% year-on-year and 6% quarter-on-quarter.

The quarter was driven primarily by non-interest income, which surged 23% year-on-year and 22% quarter-on-quarter to a record SGD 1.61 billion. Non-interest income contributed more than 40% of total income, reflecting stronger wealth management, trading, and fee activity. This helped offset continued pressure on net interest income (NII), which declined 5% year-on-year and 3% quarter-on-quarter to SGD 2.22 billion amid a lower rate environment. The decline was partly cushioned by 10% year-on-year average asset growth and disciplined deposit cost management.

Cost discipline remained firm. Operating expenses fell 4% quarter-on-quarter to SGD 1.51 billion, keeping the cost-to-income ratio at 39.3% for the second consecutive quarter and reinforcing OCBC’s cost efficiency amid uncertainty.

Asset quality also remained resilient. The Non-Performing Loan (NPL) ratio held at 0.9% for the eighth consecutive quarter, while new Non-Performing Asset (NPA) formation declined sharply to SGD 123 million from SGD 399 million in 4Q25. Total NPA coverage improved to 163%, supported by SGD 191 million in management overlays for non-impaired assets. Credit costs came in at 23 basis points, within management’s guided range of 20–25 basis points. Annualised return on equity remained stable at 13.0%.

Table 1: OCBC 1Q26 financial performance summary

Line Item	1Q26	QoQ %	YoY %
Net Interest Income	SGD 2.22b	-3%	-5%
Non-Interest Income	SGD 1.61b	22%	23%
Total Income	SGD 3.83b	6%	5%
Operating Expenses	SGD 1.51b	-4%	6%
Net Profit	SGD 1.97b	13%	5%
Net Interest Margin	1.76%	-10bps	-28bps
NPL Ratio	0.90%	Unchanged	Unchanged
Credit Costs (bps)	23bps	+3bps	-1bp
Source: OCBC Data as of 31 Mar 2026

NII pressure easing on strategic liquidity deployment and improving rate outlook

Net interest margin (NIM) compression remained the primary earnings headwind for OCBC in 1Q26. NIM declined a further 10 basis points quarter-on-quarter to 1.76%, extending the 28-basis-point decline from a year earlier. Lower benchmark rates across SGD, HKD, and USD continued to reprice the loan book faster than deposit costs could fully adjust, weighing on net interest income through the quarter.

OCBC has responded with a deliberate balance sheet strategy aimed at slowing the decline in net interest income as rates ease. The bank has continued to redeploy excess liquidity into higher-yielding treasury assets, with average balances of government bonds and investment-grade securities rising 7% quarter-on-quarter in 1Q26. While these assets typically yield less than customer loans and therefore exert some dilution on reported NIM at the margin, they still generate meaningfully higher returns than holding surplus cash. This is particularly relevant for OCBC, which typically operates with a lower loan-to-deposit ratio than its peers, resulting in a larger structural pool of excess deposits that would otherwise sit in low-yield cash positions. The strategy is already providing a visible buffer. Income from treasury assets offset approximately 30% of the adverse impact from loan repricing in 1Q26, helping to partially cushion the decline in overall NII.

The broader rate backdrop is also turning incrementally more supportive. Management’s guidance for a slight to moderate decline in full-year NII is based on assumptions of 3M SORA at approximately 1.2% and one US Federal Reserve rate cut in 4Q26. That easing path now appears increasingly unlikely as persistent energy-driven inflation shifts expectations towards a higher-for-longer policy environment. If rates remain elevated for longer, NIM could stabilise earlier than management currently anticipates. This is emerging as a supportive earnings dynamic across the Singapore banking sector in 2026.

Non-interest income strength anchored on wealth inflows and regional expansion

Non-interest income is playing an increasingly decisive role in OCBC's earnings mix. At SGD 1.61 billion in 1Q26, it contributed more than 40% of total income, supported by double-digit growth across fees, trading, and insurance. The breadth of growth shows earnings strength is not concentrated in a single line but embedded across business segments.

Figure 1: Non-Interest Income’s share of total income trending higher

Singapore’s position as a global safe-haven wealth hub is pulling in sustained capital inflows. Geopolitical uncertainty is accelerating portfolio shifts by high-net-worth individuals and institutional investors toward Singapore, supported by its political neutrality, strong legal system, and deep financial infrastructure. As one of Singapore’s two largest integrated banking and wealth platforms, OCBC is a direct beneficiary of these flows.

Looking further ahead, the acquisition of HSBC Indonesia’s International Wealth and Premier Banking business, announced in May 2026 and targeted for completion in 2Q27, extends OCBC’s wealth footprint into a key ASEAN growth market. The deal is explicitly aligned with its “Next Frontier” strategy, where OCBC is building out its ASEAN domestic market presence — with Indonesia identified as a priority growth market for the private bank.

OCBC already operates an established banking platform in Indonesia, with local infrastructure, regulatory relationships, and brand presence in place. The acquisition adds immediate scale in the affluent and high-net-worth segment, bringing a ready-built client base with substantial AUM and a sizeable Current Account Savings Account (CASA) deposit pool. That compresses the wealth monetisation timeline and lifts fee-generation capacity without requiring a multi-year build-out.

Although the transaction only begins to flow through from 2H2027, it strengthens visibility on medium-term non-interest income growth and extends OCBC’s wealth trajectory beyond the organic wealth momentum already underway.

Capital returns remain on track while the earnings outlook strengthens

OCBC’s SGD 2.5 billion capital return programme remains firmly on track for completion by 2026. The plan comprises SGD 1.5 billion in special dividends and SGD 1.0 billion in share buybacks, of which approximately SGD 800 million remains outstanding under the buyback tranche. Management has indicated that any unutilised buyback allocation will be returned through special dividends by year-end, reinforcing visibility over shareholder distributions alongside the ordinary dividend payout ratio of 50%.

Beyond 2026, distributions are likely to normalise as the capital return programme concludes. However, the earnings trajectory should continue to improve as pressure from NIM compression gradually eases and non-interest income remains structurally stronger than in prior cycles.

We maintain our target price of SGD 23.5 based on our 2028 earnings estimates, implying approximately 5.4% upside from current levels. Together with a forward dividend yield of 4.5% for 2028, OCBC offers a balanced combination of earnings resilience and capital return visibility.

Table 2: Valuation table for OCBC

OCBC (SGX: O39)
	2025A	2026E	2027E	2028E
EPS	1.6	1.7	1.8	2.0
EPS Growth	-2.4%	2.1%	8.1%	10.6%
P/E Ratio (X)	13.7	13.4	12.4	11.2
Book Value/Share	14.0	15.7	17.8	19.9
P/B Ratio (X)	1.4	1.4	1.3	1.1
Dividend Yield	4.4%	4.5%	4.0%	4.5%
Target Price (SGD)				23.5
Upside Potential (Excluding dividends)				5.4%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 12 May 2026

Figure 1: OCBC’s share price vs earnings per share

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.