There are eight key risks going into the year 2026 highlighted or implied in OCBC's recent financial results. On the surface, loans are up 7% and deposits are up 11%, indicating strong growth. The non-performing loan ratio is stable at 0.9%, and the allowance levels have a coverage ratio of 160%, which is healthy. So what is wrong with OCBC?
Firstly, the the economic impact of trade tariffs “has not fully played out”. This means that companies may still face future cost increases from tariffs based on shifting trade routes that increase logistics costs, businesses losing export customers, and supply chains reshuffling in ways that hit Asian trade hubs. Banks often see loan problems such as higher loan defaults from exporters, manufacturers, logistics companies many months after economic shocks. This generally affects the trade-related sectors and export-oriented businesses.
Secondly, OCBC signals concern about the Hong Kong commercial property (office & retail space) because OCBC has exposure here. Rental demand in HK is weak due to slow economic activity. Office vacancy remains high; prices have been falling for multiple years. Borrowers may face difficulty refinancing if interest rates stay elevated. There is a potential rise in non-performing loans if HK property developers or landlords struggle.
Thirdly, NIM (net interest margin) fell from last quarter because loan rates dropped faster than deposit costs. When central banks cut rates or markets expect cuts, banks' lending income falls quickly, but deposit expenses fall slowly. This squeezes bank profits. If rate declines continue or accelerate, profitability could fall further. OCBC's management itself admits that NIM will be under pressure in 2026 and has lowered forward guidance. They must rely on volume, not margins.
Fourthly, two opposite risks exist in the uncertain interest rate environment. If rates fall too fast, there are lower margins and weaker profits. If rates stay high for too long, borrowers may struggle, leading to more defaults.
Fifth, there is a strong warning signal from OCBC's increased “allowances for non-impaired assets” due to the bank seeing higher macroeconomic risk in the future. This is a forward-looking red flag indicating that the bank expects more uncertainty or possible deterioration. OCBC frames this positively as “pre-emptive”, but it signals rising caution, especially when even if the headline non performing loan ratio is stable, the inflow of newly troubled loans is rising. Rapid loan growth paired with rising new non performing assets can be dangerous. It may mean OCBC is lending aggressively to gain market share, and/or taking more risk in mortgages, digital infrastructure, and construction.
Sixth, volatile big wealth inflows may not be sustainable. OCBC saw S$12 billion of new money inflows in Q3 2025, but the CEO explicitly says that this may not continue because it depends heavily on market conditions. Wealth income can be highly cyclical (e.g., during market downturns, fee income can drop sharply). Fee income could retreat if market sentiment worsens.
Seventh, digital infrastructure (data centres, connectivity) and construction (domestic demand) have been highlighted as bright spots, but this concentration in digital infrastructure and construction brings with it sector-specific risks. The digital infrastructure sector is very leveraged and has long payback periods. The construction sector is sensitive to delays, cost overruns, and labour issues. If demand weakens or interest rates stay high, both sectors can turn risky.
Finally, OCBC's CEO explicitly warns 2026 may see "slower economic growth" because bank credit cycles follow economic cycles with a lag, and the current economic cycle is driven by geopolitical tensions, trade restrictions, and supply chain reconfiguration. A slower 2026 increases the probability that more loans will turn non-performing, loan growth will decelerate, and fee income tied to business activity will soften. This may already be reflected in the rise in new non performing assets.
The negative picture is contextualised even better when we know that DBS' profit is down 2%, UOB's profit is down 72% due to heavy provisions, while OCBC beat expectations. OCBC looks “stronger” now, but the industry environment is weakening, and if conditions worsen (2026 slowdown), OCBC will inevitably feel the same pressures. In the near term, we will have to be careful about something similar to the recent corrections in the gold and tech sectors.
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