OCBC's margin squeeze the worst among Singapore banks

Blame it on a culmination of reduced loan spreads, higher cost of long-term debt, and lower yields on interbank.

Here's more from CIMB:

OCBC’s 2Q net interest income contracted 2.1% qoq despite a 2.8% increase in loans. The quantum of its margins  squeeze (-9bp) was the worst of the trio and a tad worrying. Margin pressure was caused by a culmination of reduced loan spreads, higher cost of long-term debt, and lower yields on interbank.

Theoretically, going for a  lower-risk asset mix should cause risk-weighted assets (RWA) to fall, but that was not the case in 2Q. RWA went  up because of higher market risk associated with a particular chunky account. Meanwhile, OCBC Malaysia and Indonesia also saw margins contract 20bp and 33bp, respectively.

Margins (1.77%) have converged to DBS levels even though the OCBC franchise is a SME franchise, more akin to UOB. We do not like the trends we’re seeing.