To The Moon

Oversea-Chinese Banking Corporation ( $ocbc bank(O39.SI)$ , SGX:O39) is under the spotlight as its stock slides for five consecutive days to S$14.50, reflecting market concerns about an expected Net Interest Margin (NIM) decline across Singapore’s banking sector. The bank’s Q3 2024 earnings, reported on November 8, 2024, confirmed a 9-basis-point NIM drop to 2.18%, aligning with expectations but raising questions about its resilience. With a robust 9% year-on-year net profit increase to S$1.97 billion, driven by non-interest income, OCBC’s fundamentals remain strong. Can OCBC defy the NIM decline trend, and where will its stock close on Friday, July 31, 2025? This report dives into OCBC’s earnings, market dynamics, and strategic investment approaches to navigate this pivotal moment.

OCBC’s Q3 2024 Earnings: A Mixed Picture

OCBC’s Q3 2024 results, released on November 8, 2024, showcased resilience despite NIM pressure:

• Net Profit: Rose 9% year-on-year to S$1.97 billion from S$1.81 billion, and 2% quarter-on-quarter from S$1.94 billion, driven by strong non-interest income and lower allowances.

• Revenue: Total income reached a record S$3.8 billion, up 8% year-on-year, with non-interest income surging 41% to S$1.37 billion, fueled by wealth management fees, trading income, and insurance.

• Net Interest Income (NII): Remained stable at S$2.43 billion, but the Net Interest Margin (NIM) compressed by 9 basis points to 2.18%, as rising funding costs outpaced asset yield growth.

• Cost Efficiency: The cost-to-income ratio improved to 38.5% from 40.1% a year ago, reflecting positive operating jaws.

• Asset Quality: Non-performing loan (NPL) ratio stayed low at 0.9%, with customer loans growing 4% year-on-year on a constant-currency basis.

• Capital Strength: CET1 ratio stood at 17.2% (transitional) and 15.6% (fully phased-in), supporting a S$2.5 billion capital return plan via dividends and buybacks over two years.

The earnings highlight OCBC’s ability to offset NIM pressure with diversified revenue streams, but the market’s focus on the NIM decline has driven the stock’s recent slide.

Why the NIM Decline Matters

The market’s expectation of a NIM decline across Singapore banks stems from:

• Rising Funding Costs: Higher deposit rates, driven by global monetary tightening, have squeezed margins. Singapore’s three-month SORA fell to 2.08% by June 2025, but funding costs remain elevated.

• Economic Uncertainty: Trump’s tariffs (30% on EU/Mexico, 35% on Canada, effective August 1) and potential Chinese retaliation (125% on U.S. goods) could slow loan demand, per Reuters.

• Competitive Pressures: Banks are offering higher deposit rates to retain customers, further compressing NIMs, per IG Singapore.

OCBC’s 9-basis-point NIM drop to 2.18% aligns with peers:

• DBS Group Holdings (SGX:D05): Reported a 13% year-on-year NIM decline to 2.05% in Q3 2024.

• United Overseas Bank (UOB, SGX:U11): Saw a 10% NIM drop to 2.10% in the same quarter.

While OCBC’s decline is less severe, it confirms the market’s bearish outlook on NIMs, contributing to the stock’s five-day decline.

Can OCBC Defy the NIM Decline Trend?

It seems unlikely that OCBC will fully defy the NIM decline in the near term, as Q3 2024 results confirm the expected compression. However, several factors suggest resilience:

• Non-Interest Income Growth: A 41% surge in non-interest income to S$1.37 billion, driven by wealth management and insurance, cushions the NIM impact.

• Operational Efficiency: The improved cost-to-income ratio (38.5%) reflects disciplined cost management, supporting profitability.

• Stable Asset Quality: A 0.9% NPL ratio and 4% loan growth indicate a healthy loan book, reducing the need for large provisions.

• Capital Strength: A CET1 ratio of 17.2% and a S$2.5 billion capital return plan signal confidence in long-term stability.

Despite these strengths, the broader trend of NIM pressure is likely to persist due to:

• Persistent Funding Costs: The Federal Reserve’s cautious stance (64% chance of a September 2025 rate cut) keeps borrowing costs high, per futures markets.

• Tariff Headwinds: Tariffs could disrupt trade and economic growth, potentially slowing loan demand and further squeezing NIMs, per The Business Times.

• Regional Competition: Increased competition in Asia for deposits and loans could cap margin recovery, per IG Singapore.

OCBC’s diversified revenue and strong fundamentals position it to mitigate NIM declines better than peers, but a full reversal of the trend is unlikely in the short term.

Where Will OCBC Close on Friday?

OCBC’s stock (SGX:O39) has fallen 3.3% over five days to S$14.50 as of July 31, 2025, reflecting market concerns about NIM compression and broader volatility. Key technicals:

• Support/Resistance: Support at S$14.00 (50-day moving average) and S$13.50 (200-day moving average); resistance at S$15.00 (recent high) and S$15.50 (psychological level).

• RSI: At 40, indicating neutral territory with potential for a rebound if sentiment improves.

• Volume: Spiked 15% above average post-earnings, suggesting selling pressure but also bargain hunting.

Factors Influencing Friday’s Close

• Earnings Reaction: OCBC’s Q3 2024 earnings showed strong profitability despite the NIM decline, which could stabilize sentiment if investors focus on non-interest income and capital returns.

• Market Sentiment: The Straits Times Index (STI) is at 3,800 points after a 14-day rally, but August’s historical volatility (7-10% S&P 500 pullback risk) could pressure OCBC, per Investopedia.

• External Factors: The Federal Reserve’s July 30 decision and tariff developments (30% on EU/Mexico, 35% on Canada) could sway sentiment. A dovish Fed could lift financials, while tariff fears might cap gains.

Likely Scenarios

• Bullish Case: If investors view OCBC’s earnings positively, focusing on its 9% profit growth and 5% dividend yield, the stock could rebound to S$14.60-S$15.00 by Friday.

• Bearish Case: If tariff fears or broader market volatility (S&P 500 RSI at 65) intensify, OCBC could test support at S$14.00 or dip to S$13.50.

• Most Likely: Given the mixed sentiment, OCBC is likely to close between S$14.20 and S$14.60 on Friday, July 31, 2025, stabilizing after the recent slide but facing resistance due to tariff concerns.

Trading and Investment Strategies

Short-Term Plays

• Buy on Dip: Enter at S$14.00-S$14.20, target S$15.00-S$15.50, stop at S$13.50. A 7-10% gain if sentiment improves post-earnings.

• Options Straddle: Use S$14.50 calls/puts for volatility around Fed or tariff news, targeting 200-300% gains on a 10%+ move.

• Sector Hedge: Buy CapitaLand Integrated Commercial Trust (SGX:C38U) at S$2.00, target S$2.20, stop at S$1.90, for REIT stability.

Long-Term Investments

• Hold OCBC: Buy at S$14.00-S$14.20, target S$16.00-S$17.00 by 2026, for 14-21% upside with banking resilience and 5% dividend yield.

• Diversify with REITs: Buy Keppel DC REIT (SGX:AJBU) at S$2.20, target S$2.46, stop at S$2.10, for 12% upside with data center growth.

• Hold DBS Group: Buy at S$35, target S$40, stop at S$33, for 14% upside with banking stability.

• Global Exposure: Buy Tech ETF (XLK) at $200, target $220, stop at $190, for tech diversification.

Hedge Strategies

• VIXY ETF: Buy at $15, target $18, stop at $13, to hedge against tariff or market volatility.

• SPY ETF Puts: Use puts at $614 to protect against a 5-10% S&P 500 pullback.

• Gold ETF (GLD): Buy at $200, target $220, stop at $190, as a safe-haven hedge.

My Trading Plan

I’m cautiously optimistic about OCBC, seeing S$14.00-S$14.20 as a compelling entry point for long-term investors given its strong fundamentals and 5% dividend yield. I’ll buy OCBC at S$14.00-S$14.20, targeting S$15.00-S$15.50, with a S$13.50 stop, and use a S$14.50 call/put straddle for volatility. For diversification, I’ll add Keppel DC REIT at S$2.20, targeting S$2.46, with a S$2.10 stop. I’m hedging with VIXY at $15, targeting $18, and keeping 20% cash to seize dips if tariffs (30% on EU/Mexico, 35% on Canada), geopolitical tensions (Israel-Iran conflict), or market volatility escalate. I’ll monitor Fed comments, tariff updates, and OCBC’s post-earnings sentiment for cues.

Key Metrics

The Bigger Picture

OCBC’s Q3 2024 earnings confirm the expected NIM decline to 2.18%, aligning with market trends for Singapore banks, but its 9% net profit growth and strong non-interest income highlight resilience. The stock’s five-day slide to S$14.50 reflects investor caution, but its undervaluation (forward P/E ~10x vs. historical 12x) and 5% dividend yield make it attractive for long-term investors. Friday’s close is likely to hover between S$14.20 and S$14.60, with potential for a rebound if sentiment shifts. Tariff risks, geopolitical tensions, and August’s historical volatility (7-10% pullback risk) warrant caution, but OCBC’s fundamentals suggest it can weather the storm. Investors should buy on dips, diversify with REITs or tech, and hedge with VIXY or GLD to manage risks. OCBC’s not defying the NIM decline, but it’s holding its ground—play it smart to win big.

Will you buy OCBC at S$14.20, or are you waiting for a deeper dip? Share your strategy below! 🎁

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