OCBC 1H26: Record quarter, wealth-led growth shines, but valuation raises the bar

• OCBC posted record 1H26 net profit of SGD 4.19 billion, up 13%, as strong non-interest income increasingly outweighs a still-declining net interest margin.

• The wealth franchise remains the structural growth engine, with wealth management income rising 27% to SGD 3.29 billion and banking wealth AUM reaching a record SGD 350 billion.

• A firmer SORA backdrop could make net interest income more resilient than OCBC’s current guidance assumes, cushioning earnings against further margin pressure.

• Part of the 51% increase in non-interest income was driven by market-sensitive GEH investment income that may not recur at the same pace, although fee and insurance fundamentals remain durable.

• We raise our target price to SGD 32. With CET1 at the lower end of management’s target range and valuation already elevated, further returns will depend increasingly on earnings delivery.

A record first half, driven by an increasingly diversified earnings mix

OCBC delivered another record quarter, with second-quarter net profit surpassing SGD 2 billion for the first time, lifting first-half earnings to a record SGD 4.19 billion, up 13% from a year earlier. Return on equity also improved to 13.7%, while operating efficiency remained strong, with the cost-to-income ratio improving to 37.8%. Asset quality continued to be resilient, reflected in a low non-performing loan ratio of 0.9%.

Non-interest income remains an increasingly important earnings driver, with growth broad-based across wealth management, trading and investment income, and insurance. However, part of the strong uplift in trading and insurance income reflected higher investment income from Great Eastern Holdings (GEH) as equity markets rebounded from first-quarter weakness, with non-customer flow accounting for 60% of the sequential increase in trading income. While this market-related contribution may not be repeated at the same pace, the continued strength in fee income suggests that the shift towards a more diversified and higher-quality earnings mix remains intact.

Table 1: OCBC 2Q26 financial performance summary

A more supportive rate backdrop could cushion NII

Net interest income remains the main laggard in OCBC’s earnings growth on a year-on-year basis, but the pace of deterioration is moderating. On a sequential basis, net interest income rose 2%, as 5% growth in average assets more than offset a further six-basis-point decline in net interest margin to 1.70%.

More importantly, the emerging rate backdrop could be increasingly supportive of a recovery in net interest income. OCBC’s full-year guidance for a slight decline in net interest income is based on three-month SORA averaging around 1.2% in 2026, alongside no change in the US Fed Funds Rate. SORA has since risen for a third consecutive month to around 1.15% at end-July, while the Federal Reserve’s latest projections no longer point to rate cuts as the base case. If SORA continues to firm from current levels, the realised average could exceed OCBC’s projection, potentially making net interest income more resilient than currently guided and providing some upside to the earnings base in the second half.

Wealth franchise provides a durable engine for non-interest income

The more important structural driver of OCBC’s earnings remains its growing wealth franchise. Group wealth management income rose 27% year-on-year in 1H26 to a record SGD 3.29 billion, accounting for 41% of total income, up from 36% a year earlier. Banking wealth assets under management also reached a new high of SGD 350 billion, supported by net new money inflows across all segments, highlighting continued underlying demand for the bank’s wealth offering.

OCBC is continuing to invest in the franchise, committing more than SGD 1 billion annually over the coming years to AI, digital and data capabilities, while adding 600 relationship managers over three years. Its newly launched AI-enabled advisory platform and use of AI to shorten private-banking account approvals are also aimed at improving client conversion and engagement. Further ahead, the planned acquisition of HSBC’s International Wealth and Premier Banking business in Indonesia, targeted for completion in 2Q27, is expected to lift OCBC Indonesia’s AUM by around 25%, extending the wealth franchise’s growth runway in a key ASEAN market.

The main qualification is that not all non-interest income growth is equally recurring. As noted earlier, the 51% year-on-year increase in 1H26 non-interest income was partly boosted by the GEH investment component in 2Q26, which is market-sensitive and may not repeat at the same pace. Nevertheless, the underlying franchise momentum remains encouraging. Insurance fundamentals strengthened, with new business embedded value rising 28% and its margin improving to 49.8% from 44.7%. Together with continued AUM growth, this suggests that the expansion of OCBC’s wealth and insurance franchises is increasingly supported by underlying business momentum rather than market conditions alone. Should equity markets soften in the second half, the market-sensitive component could moderate, but continued growth in fee income and insurance operations should provide a more durable earnings base.

Strong fundamentals support the premium, but valuation limits near-term upside

On valuation, OCBC trades above its historical average forward price-to-book multiple, although the premium is supported by the stronger earnings mix and the broader re-rating across Singapore banks. We raise our target price to SGD 32, based on our 2028 earnings estimates, implying approximately 5.6% upside from the closing price on 7 August 2026.

For capital returns, fully phased-in CET1 declined 1.2 percentage points quarter-on-quarter to 14.0%, at the lower end of management’s target operating range, as second-quarter profit accretion was offset by the FY2025 dividend payment and a 6% increase in risk-weighted assets. While this leaves less surplus capital above management’s target level, the existing SGD 2.5 billion capital return programme remains on track for completion by 2026, providing continued visibility on capital returns in the near term. Beyond 2026, however, the reduced capital buffer could limit the scope for further special returns, although the ordinary dividend remains well supported by earnings.

We remain constructive on OCBC’s underlying earnings trajectory but see more limited near-term share price upside as much of the improving fundamentals have already been reflected in the valuation. For income-oriented investors, a forward dividend yield averaging around 3.5% continues to support the investment case. At current levels, however, further share price gains are likely to depend increasingly on earnings delivery rather than further multiple expansion, warranting a more selective approach for investors who have yet to build a position.

Table 2: Valuation table for OCBC

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

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