OCBC's customer loans rose 3% quarter-on-quarter in the third quarter of 2026, following a 5% increase in the preceding quarter partly driven by merger and acquisition (M&A) financing. Banking profit reached a record SGD 1.90 billion ($1.48 billion), while the fully phased-in common equity tier 1 (CET1) ratio remained at 14%. Loan growth moderated as Tan Teck Long, Group Chief Executive Officer of OCBC, had anticipated, but prompted the bank to raise its full-year guidance for the second time. The stable capital ratio contrasted with its decline from 15.2% in March to 14% in June, when rapid loan expansion and dividend payments increased capital pressure.

Group net profit rose 3% year-on-year (YOY) to SGD 2.04 billion ($1.59 billion), compared with a 16% increase in banking profit, as weaker investment returns at Great Eastern offset part of the growth. Group return on equity (ROE) declined from 14.4% in the preceding quarter to 13.1%. Net interest income (NII) increased 4% to SGD 2.31 billion ($1.80 billion) despite a narrower net interest margin (NIM) of 1.66%, while customer flow trading income rose 29% to a record SGD 480 million ($374 million). Customer loans reached SGD 372 billion ($290 billion), up 14% YOY in constant-currency terms, and the non-performing loan (NPL) ratio improved to 0.8%. OCBC raised its 2026 loan-growth guidance to the low-double-digit range and lowered credit-cost guidance to 15–20 basis points.

Lending growth continues beyond exceptional M&A activity

OCBC's third-quarter loan growth continued without a repeat of the previous quarter's exceptional pace. Tan had cautioned during the first-half results announcement that the 5% quarterly increase was unlikely to continue. Nevertheless, loans increased approximately 10% from the beginning of 2026 to September. OCBC identified technology, media and telecommunications (TMT), digital infrastructure, transportation, power and utilities as industries supporting corporate lending, alongside Singapore residential mortgages and wealth financing.

These industries form part of OCBC's Next Frontier strategy, which Tan has linked to investment in Asia, supply-chain restructuring, technology infrastructure and the energy transition. Sustainable-financing loans increased 13% YOY to SGD 62 billion ($48.3 billion), from SGD 59.7 billion ($46.5 billion) at the end of June. OCBC has not disclosed  how much third-quarter loan growth came from large corporate transactions or individual sectors. The composition of lending matters because borrowers and projects have different funding, credit and capital requirements. Sustained loan growth will therefore depend not only on financing demand but also on borrower selection and the returns generated relative to risk and capital consumption.

Loan growth does not necessarily improve if funding costs, credit risk or capital consumption also rise. Returns therefore depend partly on OCBC's borrower selection and transaction structures.

Data-centre lending focuses on contracted cash flows

Tan said data-centre financing accounted for approximately 3% of OCBC's total loan book, later clarifying that exposure was below 3%, while AI-related exposure was less than 1%. He distinguished broader data-centre financing from lending directly associated with artificial intelligence (AI). Responding to concerns about a potential AI investment bubble, Tan differentiated movements in technology share prices from borrowers' ability to service debt. He said OCBC assessed individual financing risks and structured transactions around cash flows available for repayment.

Tan said OCBC preferred projects backed by established hyperscalers with diversified businesses rather than standalone operators. He also explained that the bank required projects to secure electricity supply and customer commitments before considering financing. OCBC favours capacity contracted to investment-grade hyperscalers over speculative developments relying on future customers or higher market prices.

These requirements reduce uncertainty over whether completed facilities can generate sufficient revenue to service debt. Secured power and contracted customers provide greater visibility over operating cash flows, although construction delays and counterparty concentration remain risks.

Greater repayment certainty does not necessarily translate into adequate returns. OCBC must still earn sufficient income after funding costs and capital requirements, particularly as its lending margin remains under pressure.

Higher customer income offsets margin pressure

OCBC's NII rose 2% quarter-on-quarter to SGD 2.31 billion ($1.80 billion), supported by higher average interest-earning assets and yields. NIM nevertheless narrowed four basis points to 1.66% as US dollar funding costs rose ahead of asset yields. Goh Chin Yee, Group Chief Financial Officer of OCBC, explained that “three-month Secured Overnight Financing Rate (SOFR) rose more than overnight SOFR as the market priced in more rate hikes”, pushing up funding costs before assets could reprice. Goh expects the benefits of higher US interest rates to emerge progressively as repricing takes effect. Higher lending volumes therefore supported NII despite narrower margins.

Following strong first-half loan growth, OCBC paused further deployment of liquidity into non-commercial assets and increased customer fixed deposits to replace more expensive wholesale funding. “We intentionally took in more fixed deposits this quarter to replace higher-cost wholesale funding,” Goh said. Deposits rose 1% quarter-on-quarter, while the loans-to-deposits ratio increased from 78.4% in June to 79.5% in September.

Corporate lending economics also extend beyond interest margins. OCBC reported a 29% YOY increase in customer flow trading income to SGD 480 million ($374 million), supported by wealth and corporate activity, alongside higher loan, trade-related and investment banking fees. Tan said the bank placed greater emphasis on customer-driven treasury services, including foreign-exchange and interest-rate hedging and investment products.

“For us, strategically, we focus a lot more on customer flow trading income for the banking operation,” Tan said. He described this as treasury-related business driven by customers' hedging and investment requirements.

For corporate borrowers, foreign-exchange transactions, interest-rate hedging and cash-management services can generate revenue beyond lending margins without a proportionate increase in loan balances. Such income could improve returns from infrastructure and cross-border financing relationships.

OCBC has not disclosed how much customer flow trading and fee income comes from borrowers in digital infrastructure, energy and other targeted industries. Broader customer income could help offset narrower lending margins and improve returns on capital. The balance between earnings supporting capital accumulation and additional lending increasing risk-weighted assets has become more important following the second-quarter CET1 decline.

Capital remains at 14% despite further loan expansion

OCBC's fully phased-in CET1 ratio remained at 14% at the end of September, after falling from 15.2% in March to 14% in June. Higher risk-weighted assets and dividend payments had exceeded capital generated through retained earnings in the second quarter. Despite further loan growth and shareholder distributions, the ratio held steady in the third quarter.

Goh attributed this to profit accretion and balance-sheet measures that helped offset risk-weighted asset growth. She also cited active bond portfolio management, including hedging and shorter duration, which limited the impact of fair-value movements on CET1.

Goh discussed collateral management, hedging and adjustments to risk-weighted assets as part of OCBC's balance-sheet optimisation. Tan added that these efforts were ongoing, with further scope for improvement. Their capital effect depends on the exposures involved and applicable regulatory treatment. OCBC did not quantify the contribution of individual measures to its stable CET1 ratio, leaving the relative impact of balance-sheet optimisation and retained earnings unclear.

Asset quality improved, with the NPL ratio falling from 0.9% to 0.8% and non-performing assets declining 3% quarter-on-quarter to SGD 3.04 billion ($2.37 billion). Goh reported annualised third-quarter credit costs of six basis points and attributed part of the reduction in non-performing assets to recoveries from Greater China real estate accounts. Lower provisions eased pressure on current earnings, although recoveries from existing exposures do not establish the repayment performance of newly originated corporate and infrastructure loans.

With CET1 at OCBC's preferred 14% operating level, further expansion will place greater weight on the quality of earnings generated from each corporate relationship. As lending margins remain under pressure, the ability to combine financing with hedging, transaction services and disciplined funding will be increasingly important to sustaining returns.

For OCBC, sustaining its Next Frontier strategy will depend less on the pace of loan expansion than on whether its underwriting discipline, broader customer income and balance-sheet management can support returns through changing market conditions.