Oversea-Chinese Banking Corporation (OCBC) delivered stronger-than-expected earnings for the first nine months of 2025, prompting Maybank Investment Bank (Maybank IB) to upgrade the stock to a “Buy” rating and raise its target price to S$20.52 from S$17.78.
Maybank IB said the bank’s “One Group” strategy — aimed at deepening integration across its banking, wealth management, and insurance businesses — is now delivering material results, providing downside support to return on equity (ROE) even amid volatile operating conditions.
“The group has already surpassed its goal of achieving S$3 billion in incremental income by end-2025 through One Group synergies,” Maybank IB said in its report. “These synergies, alongside resilient credit quality and capital strength, should sustain earnings and dividend momentum into 2026.”
Wealth Management, Insurance Synergies Fuel Growth
OCBC’s non-interest income (NoII) exceeded expectations in the third quarter, driven by a surge in wealth management and insurance contributions.
Wealth fees climbed 35% quarter-on-quarter, accelerating from the 5% average growth seen over the past three quarters. The uplift came as upgraded systems, a larger base of relationship managers (RMs), and fixed deposits (FDs) being converted into higher-yield investment products began to take effect.
Meanwhile, OCBC’s insurance new business embedded value (NBEV) margin rose to 48.8% in 3Q25, up from 39.9% a year ago, reflecting stronger cross-selling and integration within the group.
Maybank IB noted that an increasingly integrated OCBC model could “provide downside ROE protection” against macroeconomic volatility in 2026.
Loan Growth Leads Peers, Margins Stabilising
OCBC’s loan book expanded 7% year-on-year, the fastest pace among its Singapore banking peers, with the strongest growth in Singapore itself (+9% YoY).
Maybank IB believes the bank’s significant exposure to small and medium-sized enterprises (SMEs) positions it well to benefit from Singapore’s construction boom.
While net interest margin (NIM) slipped 8 basis points quarter-on-quarter, this was the slowest decline in three quarters. The September exit NIM of 1.84% matched the quarterly average, signalling early signs of margin stabilisation.
Together with the bank’s ample liquidity invested in high-quality liquid assets (HQLA), Maybank IB expects net interest income (NII) momentum to remain positive in 2026.
OCBC also continues to maintain strong asset quality, with non-performing asset (NPA) coverage at 160%, the highest among peers, and general provisions at 0.9% of total loans, providing a robust buffer against potential credit losses.
Capital Strength Supports Dividend Upside
Maybank IB raised OCBC’s 2025–2027 earnings per share (EPS) forecasts by 7–9%, citing sustained operating performance and a strong capital base.
Although OCBC’s 60% dividend payout ratio under its capital management framework is set to revert to 50% in 2026, analysts believe further capital distribution initiatives remain likely.
“Given its high CET1 ratio of 16.9% and management’s indication of limited M&A opportunities, we expect capital returns to continue, supporting a 2026 dividend yield of around 6%,” Maybank IB added.
The research house derived its new target price of S$20.52 using a multi-stage dividend discount model (DDM), incorporating a lower cost of equity (COE) of 8.4% and a 3% terminal growth rate to reflect reduced market risk.
Outlook: “Buy” on Strong Fundamentals and Synergy Gains
Maybank IB concluded that OCBC’s solid capital position, stabilising margins, and synergy-driven income growth place it in a strong position heading into 2026.
“Downside ROE support amid falling rates, strong synergies from One Group, and potential for more capital returns have us upgrading OCBC to Buy,” it said.
