OCBC wealth clients turn defensive amid market volatility as Q3 profit rises 3%

[SINGAPORE] More of OCBC’s wealth customers shifted towards lower-risk or defensive investment products amid market volatility in the third quarter, helping the bank post record customer flow trading income despite the drag from weaker investment performance at insurance arm Great Eastern.

The bank posted a 3 per cent rise in net profit for Q3 to S$2.04 billion, supported by stronger banking operations, including customer flow trading income and higher wealth management fees.

“We saw volatility in the financial markets, so customers gravitated towards low-risk product or products with a defensive nature, and we continue to capture that... under our customer flow trading income,” said group CEO Tan Teck Long at OCBC’s Q3 results briefing on Friday (Nov 6).

Customer flow trading income refers to the revenue OCBC earns from facilitating trading transactions for its customers, rather than trading for its own account.

His comments came as Asian markets suffered a rout following a tech stock sell-off in US markets overnight, amid fears of an artificial-intelligence slowdown after the US midterm elections.

In Q3, clients remained invested despite being more cautious, the bank noted.

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This activity was captured under customer flow trading income, which rose 29 per cent to a record S$480 million, driven by both wealth and corporate segments.

Wealth fees rose 3 per cent to S$442 million, the second-highest quarter on record after Q2.

However, non-interest income declined 10 per cent to S$1.42 billion, mostly from weaker insurance income by Great Eastern.

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OCBC’s group chief financial officer Goh Chin Yee noted that Great Eastern recorded mark-to-market losses mainly on its shareholders’ fund bond portfolio amid rising interest rates, compared with the investment gains in the previous period.

These mark-to-market volatilities do not reflect the underlying strength of Great Eastern’s insurance business, she said, adding that new business embedded value grew 14 per cent on the year to S$208 million due to strong sales in Singapore across both agency and banker channels.

Meanwhile, net interest income for the quarter rose 4 per cent to S$2.31 billion, supported by growth in average assets, from an increase in both customer loans and high-quality non-commercial assets.

Loans grew 14 per cent to S$372 billion as at September, driven by both corporate and consumer loans.

Net interest margin (NIM) fell 18 basis points (bps) to 1.66 per cent for Q3 FY2026, from 1.84 per cent in the previous corresponding period, amid a lower interest-rate environment.

The net profit of S$2.04 billion in Q3 came in slightly above the S$2 billion consensus forecast in a Bloomberg survey of seven analysts.

The bank’s non-performing loans ratio was 0.8 per cent, down from 0.9 per cent in the same period a year earlier.

Expect continued growth in 2027; upgraded 2026 guidance

Following its Q3 results, OCBC raised its financial guidance for 2026.

It now expects loan growth to be in the low double digits, compared with its previous forecast of a high-single-digit to low-double-digit increase.

Total income is expected to expand by at least a mid-single-digit percentage, with a flat to slight decline in net interest income. It previously guided for a slight decline in net interest income.

Meanwhile, credit costs should be in the range of 15 to 20 bps, compared with the previously guided 25 to 30 bps.

The bank expects NIMs to stabilise in the coming quarters, supported by a higher interest rate environment.

On dividends, Tan said the bank will revert to its 50 per cent payout ratio once its capital return programme concludes this year, although he expects absolute dividends to rise as overall profits increase.

Tan declined to share guidance figures for 2027, noting that the lender has historically done so during the release of its Q4 results, typically in February.

Nevertheless, he expects the business will continue to grow, driven by the “Next Frontier” strategy he introduced after taking on the role of CEO earlier this year.

Tan remains optimistic about opportunities across OCBC’s four key markets in Singapore, Hong Kong, Malaysia and Indonesia.

He said that Malaysia benefits “big time” from global industries, as it is part of global supply chains for semiconductors and tech, and houses many data centres.

As OCBC pivots its Malaysia business to focus on wealth, the bank expects many cross-selling opportunities between its banking operations and Great Eastern, he added.

In Indonesia, Tan noted that the economy is still growing and benefits from demand for natural resources, although the bank remains watchful of risks given MSCI’s possible reclassification of its market.

Indonesia accounted for around 5 per cent of OCBC’s operating profits in Q3, as double-digit growth in its loan book and assets under management was offset by currency weakness.

Tan said the bank has identified growth opportunities in selected sectors in Indonesia, such as data centres and logistics.

“At the end of the day, Indonesia is an archipelago, and therefore there will always be opportunities,” he said. “There will still be more vulnerable segments, so we try to match that exposure conservatively.”

Commenting on AI financing, Tan said the bank has a “prudent credit underwriting policy” where it only finances deals backed by cash flows rather than speculative builds.

He expects the order book to be “pretty strong” for the next two to three years, given demand for data centres and semiconductors amid bottlenecks in the supply chain.

Tan also expects global conditions to remain uncertain amid geopolitical tensions and elevated inflation risks.

“Much of the near-term outlook will depend on the easing of energy prices brought about by the war in the Middle East, while the market conditions in Indonesia are also being closely monitored,” he said.

“Meanwhile, AI and related technology sectors continue to register strong growth.”

Shares of OCBC were trading 0.5 per cent or S$0.14 lower at S$27.79 as at the midday break on Friday.