OCBC Earnings: Concerns About U.S. Office Exposure, Though Not Large, Prompt Higher Credit Costs

We maintain our fair value estimate of SGD 16 for narrow-moat Oversea-Chinese Banking after its second-quarter earnings. Our fair value estimate implies 1.4 times the 2023 book value and represents 23% upside. Unlike its Singaporean banking rival DBS, whose second-quarter earnings came out a day earlier and surprised the market to the upside, OCBC’s results were in line with expectations overall or perhaps a tad soft. The reason for the slight softness in the quarter was annualized credit costs of 35 basis points of loans, higher than OCBC’s full-year guidance of 20 basis points, as the bank added general provisions to bring its coverage levels up.