CGS International
August 1, 2025

OCBC 2Q25 Earnings Review: Navigating Margins, Capital Returns, and Sector Comparisons Across ASEAN Banks

Introduction: OCBC Delivers a Solid Mid-Year Performance Amid Margin Pressures

Oversea-Chinese Banking Corporation (OCBC) reported a core net profit of S\$1.82 billion for the second quarter of 2025, marking a 6.6% year-on-year and 3.6% quarter-on-quarter decline. Despite this, the results came in line with both internal and Bloomberg consensus expectations. OCBC’s management has provided updated guidance for the full year, reflecting the evolving interest rate environment and macroeconomic uncertainties. Investors can expect continued focus on capital returns and a stable outlook for the remainder of the year.

Key Financial Highlights: 2Q25 at a Glance

• Net Interest Margin (NIM): Declined by 12 basis points quarter-on-quarter to 1.92%, a steeper drop than anticipated. However, net interest income was supported by a 1.9% quarter-on-quarter growth in interest-bearing assets, with loans up 0.9%.
• Non-Interest Income: Fell 3.5% quarter-on-quarter in 2Q25, primarily from an 18.3% decline in life and general insurance. This was partially offset by a 6.2% increase in net fees and commissions, with wealth management fees rising 3.7% to S\$279 million.
• Cost Efficiency: Staff costs decreased 3.8% quarter-on-quarter, resulting in a cost-to-income ratio (CIR) of 39.1%. The 1H25 CIR stands at 38.9%, comfortably below management’s full-year guidance of the low-40% range.
• Credit Costs: Lower at 12 basis points in 2Q25, with both specific and general provisions declining after pre-emptive provisioning in the prior quarter due to uncertainties from Liberation Day events.

FY25 Guidance Update: Navigating a Lower Margin Environment

• NII Outlook: OCBC now expects net interest income to decline by a low- to mid-single-digit percentage, with NIM guided at 1.90-1.95% (down from around 2% previously). The 2Q25 NIM print of 1.92% suggests a more stable margin trajectory for the second half.
• Loan Growth: The bank remains confident in achieving mid-single-digit loan growth for FY25, supported by regional infrastructure projects and further deployment of liquidity into high quality liquid assets (HQLA). These measures should help cushion NIM pressures.
• Other Guidance: Full-year CIR remains in the low-40% range, and credit cost guidance is 20-25 basis points.

Capital Return Commitment: S\$2.5 Billion Plan Remains Intact

• OCBC reaffirmed its commitment to a S\$2.5 billion capital return plan for FY25. This includes a special dividend per share (DPS) of S\$0.14 for FY24 and an incremental 10% payout ratio for FY25 total dividend.
• The bank declared an interim DPS of S\$0.41 for 1H25, translating to a 50% payout ratio. The special DPS is expected to be declared after 2H25 results.

Investment Recommendation: Hold Rating with Target Price of S\$17.20

• CGS International maintains a Hold rating on OCBC with a GGM-based target price of S\$17.20 (ROE: 12.5%, COE: 10%, LTG: 2.0%).
• Upside Risks: Recovery in NIM from deposit rate cuts, slower-than-expected Fed rate reductions, and positive FY26 capital return initiatives.
• Downside Risks: Reversal in loan growth, further NIM declines, weaker non-interest income, and asset quality deterioration.

OCBC Key Financial Forecasts

OCBC in Context: Sector Comparison Across ASEAN Banks

Singapore Average: P/BV 1.52x, ROE 13.7%, P/E 8.9x, Dividend Yield 6.4%, 3Y EPS CAGR 2.8%

Indonesia Banks

• Bank Central Asia (BBCA IJ): Add; Price: 8,275; Target: 11,100; Mkt Cap: US\$61,990m; P/BV: 3.64x; ROE: 21.6%; P/E: 13.4x; Div Yield: 3.7%; 3Y EPS CAGR: 7.5%
• Bank Jago (ARTO IJ): Add; Price: 1,870; Target: 2,200; Mkt Cap: US\$1,575m; P/BV: 2.95x; ROE: 3.0%; P/E: 23.1x; Div Yield: 0.0%; 3Y EPS CAGR: 71.6%
• Bank Mandiri (BMRI IJ): Add; Price: 4,510; Target: 6,500; Mkt Cap: US\$25,579m; P/BV: 1.42x; ROE: 19.5%; P/E: 4.3x; Div Yield: 8.1%; 3Y EPS CAGR: 7.3%
• Bank Rakyat Indonesia (BBRI IJ): Add; Price: 3,710; Target: 4,900; Mkt Cap: US\$34,169m; P/BV: 1.70x; ROE: 17.7%; P/E: 4.7x; Div Yield: 8.7%; 3Y EPS CAGR: 5.8%
• Bank Tabungan Negara (BBTN IJ): Add; Price: 1,115; Target: 1,250; Mkt Cap: US\$950.9m; P/BV: 0.46x; ROE: 9.5%; P/E: 1.8x; Div Yield: 5.1%; 3Y EPS CAGR: 7.7%
• Bank Tabungan Pensiunan Nasional Syariah (BTPS IJ): Add; Price: 1,410; Target: 1,850; Mkt Cap: US\$660.1m; P/BV: 1.04x; ROE: 14.0%; P/E: 4.2x; Div Yield: 2.4%; 3Y EPS CAGR: 17.7%

Indonesia Average: P/BV 2.15x, ROE 19.0%, P/E 6.8x, Dividend Yield 5.9%, 3Y EPS CAGR 7.0%

Malaysia Banks

• Affin Bank (ABANK MK): Hold; Price: 2.38; Target: 2.65; Mkt Cap: US\$1,413m; P/BV: 0.50x; ROE: 4.4%; P/E: 8.7x; Div Yield: 3.5%; 3Y EPS CAGR: 9.1%
• Alliance Bank Malaysia (ABMB MK): Add; Price: 4.49; Target: 5.35; Mkt Cap: US\$1,820m; P/BV: 0.85x; ROE: 10.3%; P/E: 5.4x; Div Yield: 5.7%; 3Y EPS CAGR: 11.3%
• AMMB Holdings (AMM MK): Add; Price: 5.05; Target: 6.65; Mkt Cap: US\$3,914m; P/BV: 0.78x; ROE: 9.6%; P/E: 6.2x; Div Yield: 6.1%; 3Y EPS CAGR: 9.2%
• Bank Islam Malaysia (BIMB MK): Add; Price: 2.24; Target: 2.92; Mkt Cap: US\$1,189m; P/BV: 0.63x; ROE: 7.3%; P/E: 4.7x; Div Yield: 6.9%; 3Y EPS CAGR: 8.0%
• Hong Leong Bank (HLBK MK): Add; Price: 19.00; Target: 30.70; Mkt Cap: US\$9,648m; P/BV: 1.00x; ROE: 11.9%; P/E: 10.6x; Div Yield: 4.4%; 3Y EPS CAGR: 6.0%
• Malayan Banking (MAY MK): Add; Price: 9.39; Target: 13.00; Mkt Cap: US\$26,573m; P/BV: 1.14x; ROE: 11.0%; P/E: 7.3x; Div Yield: 6.9%; 3Y EPS CAGR: 8.9%
• Public Bank (PBK MK): Add; Price: 4.21; Target: 5.77; Mkt Cap: US\$19,142m; P/BV: 1.34x; ROE: 12.2%; P/E: 8.2x; Div Yield: 5.4%; 3Y EPS CAGR: 7.5%
• RHB Bank (RHBBANK MK): Add; Price: 6.13; Target: 7.30; Mkt Cap: US\$6,263m; P/BV: 0.78x; ROE: 9.4%; P/E: 5.6x; Div Yield: 7.3%; 3Y EPS CAGR: 10.5%

Malaysia Average: P/BV 1.04x, ROE 10.7%, P/E 7.5x, Dividend Yield 6.0%, 3Y EPS CAGR 8.4%

Thailand Banks

• Bangkok Bank (BBL TB): Hold; Price: 148.0; Target: 148.0; Mkt Cap: US\$8,638m; P/BV: 0.49x; ROE: 7.4%; P/E: 3.2x; Div Yield: 6.1%; 3Y EPS CAGR: 0.6%
• Kasikornbank (KBANK TB): Add; Price: 162.0; Target: 184.0; Mkt Cap: US\$11,737m; P/BV: 0.66x; ROE: 7.3%; P/E: 3.8x; Div Yield: 5.6%; 3Y EPS CAGR: 6.9%
• Kiatnakin Phatra Bank (KKP TB): Hold; Price: 55.25; Target: 52.00; Mkt Cap: US\$1,398m; P/BV: 0.71x; ROE: 7.4%; P/E: 4.4x; Div Yield: 5.2%; 3Y EPS CAGR: 9.0%
• Krung Thai Bank (KTB TB): Add; Price: 22.00; Target: 25.00; Mkt Cap: US\$9,402m; P/BV: 0.66x; ROE: 8.0%; P/E: 3.7x; Div Yield: 5.8%; 3Y EPS CAGR: 2.5%
• Muangthai Capital (MTC TB): Add; Price: 37.75; Target: 54.00; Mkt Cap: US\$2,447m; P/BV: 1.84x; ROE: 17.2%; P/E: 5.9x; Div Yield: 0.9%; 3Y EPS CAGR: 22.1%
• SCB X (SCB TB): Add; Price: 126.5; Target: 130.0; Mkt Cap: US\$13,024m; P/BV: 0.86x; ROE: 8.3%; P/E: 4.5x; Div Yield: 7.8%; 3Y EPS CAGR: 4.5%
• Srisawad Corporation (SAWAD TB): Hold; Price: 20.30; Target: 20.50; Mkt Cap: US\$1,031m; P/BV: 0.89x; ROE: 12.1%; P/E: 4.0x; Div Yield: 2.5%; 3Y EPS CAGR: -0.6%
• Tisco Financial Group (TISCO TB): Hold; Price: 99.25; Target: 99.00; Mkt Cap: US\$2,430m; P/BV: 1.80x; ROE: 14.7%; P/E: 7.9x; Div Yield: 6.9%; 3Y EPS CAGR: 0.3%
• TMBThanachart Bank (TTB TB): Hold; Price: 1.93; Target: 1.86; Mkt Cap: US\$5,607m; P/BV: 0.76x; ROE: 8.4%; P/E: 5.3x; Div Yield: 7.1%; 3Y EPS CAGR: 2.2%

Thailand Average: P/BV 0.71x, ROE 8.1%, P/E 4.1x, Dividend Yield 6.1%, 3Y EPS CAGR 4.2%

OCBC By the Numbers: Profit & Loss and Balance Sheet Overview

Key Ratios and Operational Metrics

• Total Income Growth (2025F): 1.1%
• Operating Profit Growth (2025F): -1.7%
• Pretax Profit Growth (2025F): -2.4%
• Net Interest to Total Income: 65.9% (2025F)
• Cost of Funds: 2.76% (2025F)
• Return on Interest Earning Assets: 5.42% (2025F)
• Net Interest Spread: 2.66% (2025F)
• Net Interest Margin (Avg Deposits): 2.44% (2025F)
• Cost-Income Ratio: 41.3% (2025F)
• Net Loan Growth: 2.2% (2025F)
• Deposit Growth: 2.0% (2025F)
• Loans-Deposits Ratio: 80.8% (2025F)

Conclusion: OCBC’s Outlook and Sector Positioning

OCBC demonstrates resilience amid lower interest margins and macroeconomic uncertainties, maintaining disciplined cost control and reaffirming its capital return commitment. While sector comparisons reveal OCBC’s solid standing, regional peers in Indonesia, Malaysia, and Thailand each exhibit distinct strengths, with higher growth and returns in some markets. The Hold rating reflects a balanced outlook as investors await further clarity on capital return initiatives and future earnings drivers.
For investors seeking exposure to ASEAN financials, a diversified approach is prudent, considering the varying growth trajectories, dividend yields, and risk profiles across the region’s leading banks. OCBC remains a core, stable holding with robust capital policies and a manageable risk-reward profile in the Singapore banking landscape.