OCBC announces SGD NC5 perpetuals at an IPG of 3.50%

• Oversea-Chinese Banking Corporation Ltd (OCBC) plans to issue new SGD NC5 AT1 perpetuals at an initial price guidance of 3.50%, for accredited and institutional investors only.
• OCBC is rated AA- / Aa1 / AA- by S&P / Moody’s / Fitch, while the new perpetuals are expected to be rated BBB- / Baa1 / BBB+. The first call and reset date is 19 August 2031, 5 years after issuance. Proceeds from this new issue will be used for general corporate purposes.

Financial highlights

• 2Q26 net interest income (NII) held relatively steady at $2,264m, representing a -1% y/y decline but also a +2% q/q increase. Net interest margin (NIM) remains an important headwind, as 2Q26 NIM fell -6bps q/q to 1.70% on loan repricing and higher funding costs. However, this was offset by a +5% q/q increase in average interest-earning assets. June exit NIM fell further to 1.67%, suggesting residual margin pressures heading into 3Q26.
• 2Q26 non-interest income (non-NII) was the main earnings growth driver, increasing +51% y/y and +19% q/q to $1,906m. Fee income benefited from continued Wealth Management momentum, including supportive net new money inflows of ~$6b in 2Q26 and ~$11b across 1H26. Meanwhile, trading & investment income also grew strongly (+85% y/y, +60% q/q), supported by record customer-flow income and stronger Great Eastern investment income following a 2Q26 rebound in equity markets.
• OCBC’s revenue mix is becoming more diversified, with 2Q26 non-NII rising to 46% of total income from 36% a year ago. This diversifies its business away from rate-sensitive NII, especially as recurring wealth fees continue to grow, though we note that part of 2Q26’s non-NII strength came from market-sensitive trading and investment income which may not be as repeatable.
• Operating leverage remained positive as cost-to-income ratio (CIR) fell to 37.8% in 2Q26 (2Q25: 39.1% / 1Q26: 39.3%). This was despite a +13% increase in operating expenses due to continued investment in technology. This CIR improvement therefore reflects cost discipline despite strong business growth.
• Asset quality remained benign. As at end-2Q26, non-performing loans (NPL) ratio stayed at 0.9%, while non-performing assets (NPA) increased just 4% y/y to $3,132m, and NPA coverage improved from 163% (end-2Q25: 156%). Allowances (or provisions) rose +36% y/y but fell -28% q/q to $156m. New NPAs reflected two Greater China commercial real estate assets which were already noted by management, while management added small overlays for un-impaired assets in Indonesia due to macroeconomic uncertainties.
• Overall earnings remain resilient despite NIM pressures. Net profit (after tax) rose +22% y/y and +12% q/q to $2,221m, while return-on-equity (ROE) improved to 14.4%. Strong non-NII growth and positive operating leverage more than offset weaker NIM during the quarter.
• Management recently upgraded their FY26 targets following the stronger 2Q26 results, pointing to a solid revenue outlook despite NIM pressure.
• Total income: Expected to ‘grow’ (previously: ‘stable to growing’).
• NII: Expected to see a ‘slight’ decline (previously: ‘slight to moderate’ decline).
• Loan growth: High-single-digit to low-double-digits (previously: mid-single-digit).
• CIR: Low-40% (previously: low-mid 40%).
• Credit costs: Unchanged at 20 – 25 bps

Credit highlights

• Capital remains very comfortable despite its headroom technically declining during 2Q26. OCBC reported a transitional CET1 ratio of 15.7%, Tier 1 ratio of 16.3%, and total capital ratio of 18.2%. We note that the 15.7% CET1 ratio was lower than 1Q26’s 17.0%, though this q/q decline primarily reflects already-announced FY25 dividend payments as well as RWA growth. These ratios are well above their respective regulatory requirements. For instance, OCBC’s CET1 requirement is approximately 9.3%, representing a 640 bps headroom.
• Fully phased-in CET1 ratio was estimated at 14.0%, down to management’s target operating range of 14%. This nonetheless remains comfortably above current regulatory requirements. With OCBC reiterating its commitment to complete its $2.5b FY26 capital return programme, we expect future profit accretion to be mitigated by these capital returns, which could take the form of dividends and/or buybacks.
• Funding and liquidity are clear strengths for OCBC. Its loan-to-deposit ratio (LDR) was conservative (78.4%) at end-June 2026. Its liquidity coverage ratio (LCR) of 131% and net stable funding ratio (NSFR) or 109% remain above their respective requirements. Funding risks remain very low, supported by OCBC’s strong deposit franchise (especially in Singapore), as well as its AA- issuer ratings which provide ready access to wholesale markets.

Bond comparison

• The bonds have an initial price guidance (IPG) of 3.50%. At this 3.50% IPG, the new issue implies a reset spread of around 148 bps based on an estimated 5y SORA of 2.0173%. However, any tightening from the IPG to the final price guidance (FPG) would reduce both the initial yield and the eventual reset spread.
• Table 1 compares the new issue with outstanding SGD bank perpetuals from OCBC and UOB, as well as similarly-dated bonds from HSBC, Standard Chartered and Barclays. This gives our comparison some diversity, as it includes both Singapore-based and non-Singapore-based banks.
• At the 3.50% IPG, the new issue provides some yield pickup over existing OCBC/UOB SGD perpetuals, which generally trade at yields below 3%. However, much of this pickup reflects the new issue’s longer time to first reset, while most domestic comparables are closer to their reset dates. The new issue’s implied ~148bps reset spread also appears fairly modest versus these outstanding AT1s, especially accounting for the expected tightening of IPG to FPG.
• By contrast, similarly-dated perpetuals from non-domestic banks offer materially higher yields and reset spreads, though these issuers are typically rated 1 - 2 notches below OCBC.
• Overall, we consider the new perpetual fairly priced. While it provides a yield pickup over other outstanding perpetuals by OCBC and UOB, we note that perpetuals by lower-rated foreign banks (AT1s) offer materially higher yields and reset spreads. This new issue is therefore best suited for investors prioritising OCBC’s strong credit profile rather than for those seeking maximum relative value.

Note: These perpetuals are considered to be Additional Tier 1 capital for OCBC. These perpetuals therefore come with loss-absorption risks. There is also a possibility of non-calls, resulting in extension risks. Investors should be mindful of such risks before investing.

Table 1: Bond comparison

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in OCBCSP 3.900% Perpetual Corp (SGD), UOBSP 4.250% Perpetual Corp (SGD), UOBSP 2.550% Perpetual Corp (SGD), BACR 4.650% Perpetual Corp (SGD), and STANLN 4.300% Perpetual Corp (SGD). The analyst who produced this report holds NIL positions 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.