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OCBC Bank: Capitalizing on Regional Strengths and Digital Innovation for Sustainable Growth

Investment Thesis: Robust Regional Play and Digital Transformation

Oversea-Chinese Banking Corporation Limited (OCBC SP) stands as a diversified financial powerhouse, offering a comprehensive suite of services from deposit-taking to corporate and personal lending, international trade financing, investment and private banking, treasury, stockbroking, insurance, credit cards, cash management, and asset management. The bank’s latest strategic moves and financial results underline its resilience and forward-thinking approach, especially as it deepens its regional presence and pioneers digital asset solutions. OCBC is reaffirmed as a “BUY” with a recommended entry at 16.70, a target price of 17.60, and a stop loss at 16.25.

Expanding Regional Franchise: Indonesia in Focus

OCBC is leveraging its extensive network in Indonesia—boasting over 200 branches—to capture surging financing demand. As foreign companies accelerate local operations under Indonesia’s domestic supply-chain policies, the country is drawing investments from manufacturers, F&B brands, and healthcare firms looking to localize production.

• Strategic Connector: OCBC acts as a critical bridge for ASEAN corporates, facilitating joint ventures and providing multi-currency accounts and working capital financing.
• Diversification: The bank’s strong Indonesian presence diversifies loan growth beyond Singapore, reinforcing its relevance as regional supply chains respond to tariff shocks and evolving global trade dynamics.

Digital Transformation: Tokenized Commercial Paper Initiative

OCBC has launched a pioneering US\$1 billion digital U.S. commercial paper (CP) program, supplementing its existing US\$25 billion conventional CP framework. By leveraging blockchain technology, OCBC is able to issue tokenized CPs—tapping into the vast US\$1.4 trillion U.S. CP market while reducing funding costs and boosting operational efficiency.

• First Issuance: The inaugural issuance was completed on August 20, with JP Morgan as sole dealer.
• Innovation Leadership: This move demonstrates OCBC’s commitment to commercializing Singapore’s burgeoning blockchain ecosystem and advancing asset tokenization trends.
• Balance Sheet Strength: Access to diversified and cheaper USD funding enhances OCBC’s flexibility, supporting global expansion and liquidity management.

Safe-Haven Status Amid Margin Pressures

Despite a challenging macroeconomic backdrop and falling interest rates, OCBC continues to solidify its position as a safe-haven financial institution. The bank’s 2Q25 net profit saw a 7% year-over-year decline, primarily due to a 6% drop in net interest income and a contraction in net interest margin to 1.92% (down from 2.20% a year earlier). However, earnings still surpassed consensus forecasts, buoyed by robust fee and trading income.

• Wealth Management: Wealth management fees surged 31.6% year-over-year, underscoring OCBC’s success in diversifying revenue streams.
• Dividend Adjustments: Dividend per share was adjusted to 41 Scents, equating to a 50% payout ratio amid ongoing global uncertainty and U.S. tariff headwinds.
• Singapore’s Financial-Haven: The bank continues to attract regional wealth flows, reinforcing its status as a preferred safe-haven amidst market volatility.
• Stable Asset Quality: Management highlighted stable non-performing loan (NPL) ratios at 0.9% and proactive provisioning for future uncertainties.
• Growth Drivers: Loan growth remains robust, particularly in housing, data centers, and regional corporate lending, supporting OCBC’s long-term optimism on ASEAN and Greater China opportunities.

Financial Performance: 1H25 Results at a Glance

Capital Return Commitment: Shareholder Rewards on the Horizon

OCBC reiterated its commitment to a previously announced S\$2.5 billion capital return plan, which includes a special dividend equivalent to 10% of FY25 Group net profit and share buybacks to be executed over two years, scheduled for completion by 2026.

Conclusion: OCBC Positioned for Sustainable Growth

With its entrenched regional presence, innovative digital asset initiatives, and prudent capital management, OCBC is well-positioned to weather macroeconomic headwinds and capitalize on ASEAN’s growth opportunities. The bank’s ability to diversify income streams, maintain asset quality, and reward shareholders underscores its status as a resilient and future-ready financial institution.

Key Investment Highlights

• Deepening Indonesian franchise supports loan growth and regional diversification.
• Pioneering digital commercial paper initiative enhances funding flexibility and operational efficiency.
• Stable NPL ratios and pre-emptive provisioning underpin resilient asset quality.
• Focused on shareholder returns through attractive dividends and planned buybacks.
• Singapore’s safe-haven status and robust wealth management growth bolster long-term outlook.