OCBC Flags Middle East War Risks as Southeast Asia’s Energy Exposure Clouds Banking Outlook

Oversea-Chinese Banking Corp delivered stronger-than-expected first-quarter earnings Friday, but the lender also sent one of the clearest warnings yet from a major Asian bank about the growing economic risks stemming from the Middle East conflict and its impact on energy markets.

Singapore’s second-largest bank reported net profit of S$1.97 billion for the January-to-March period, up 5% from S$1.88 billion a year earlier and ahead of analyst estimates of S$1.89 billion, according to LSEG data.

The more significant development may have been the bank’s decision to sharply increase precautionary buffers for potential future stress, even as executives emphasized that current credit quality remains stable. The bank emerged as the only major Singapore lender this earnings season to openly acknowledge the growing macroeconomic dangers tied to the conflict, while simultaneously increasing precautionary provisions despite no visible deterioration in its loan book.

That stance signals rising unease inside regional financial institutions that the impact of the war may spread far beyond oil markets and eventually weaken consumption, corporate activity, trade flows and credit quality across Asia’s export-driven economies.

OCBC reported net profit of S$1.97 billion for the January-to-March quarter, up 5% from S$1.88 billion a year earlier and ahead of analyst estimates of S$1.89 billion compiled by LSEG. The earnings beat was largely driven by record non-interest income and strong wealth-management performance, which helped offset pressure from falling interest margins as global monetary conditions began to ease.

But the bank’s decision to sharply increase allowances for non-impaired assets drew the strongest attention from investors and analysts.

OCBC set aside S$191 million in precautionary buffers during the quarter, compared with S$118 million a year earlier. The figure was especially striking because the bank had recorded a S$36 million write-back in the previous quarter, underscoring how rapidly its risk assessment has shifted.

CEO Tan Teck Long said the provisions were linked directly to concerns about the economic consequences of the Middle East war.

“We remain very concerned about what’s happening in the Middle East war because it’s a very direct impact in Southeast Asia in terms of energy supply and therefore the prices,” Tan told reporters.

“So to be prudent, although we don’t see credit quality issue in our portfolio… we have put in some general provisions for non-impaired loans, it’s really a third-order effect which we are being prudent about.”

The comments underline a growing concern among Asian lenders that the conflict could trigger a broader inflationary cycle at a time when many economies were expecting relief from high interest rates and slowing global demand.

Southeast Asia remains highly exposed to imported energy shocks. Countries across the region rely heavily on oil and gas imports for transportation, electricity generation, and industrial production. Sustained increases in crude prices could rapidly feed through to food costs, manufacturing expenses, and consumer inflation.

That risk is particularly sensitive now because many regional economies are already grappling with weaker exports, slowing Chinese demand, and softening manufacturing activity. A prolonged energy shock could force central banks across Asia to delay interest-rate cuts or even maintain tighter monetary conditions for longer than expected, adding further pressure to businesses and households.

OCBC executives stressed that direct exposure to the conflict remains limited for now. Chief Financial Officer Goh Chin Yee said direct Middle East-linked exposure, including petrochemical and refinery-related lending, represented less than 3% of total loans and around 1% of total assets.

However, she acknowledged the bank was increasingly focused on indirect fallout.

“The first-order impact is not material,” Goh said, adding that the lender was closely watching “second- and third-order effects” if the conflict drags on.

Those second-order risks include rising transportation costs, weakening consumer spending, margin pressure for manufacturers, disruptions to shipping routes, and increased volatility in commodity markets.

The cautious tone from OCBC is understood to mean there’s a wider shift taking place inside global banking. After years of focusing on inflation and aggressive central bank tightening, financial institutions are now confronting a more fragmented geopolitical environment where wars, sanctions, supply-chain disruptions, and energy security concerns are becoming persistent features of the global economy.

The quarter also highlighted the extent to which Singapore’s banking giants are increasingly relying on wealth management and fee-generating businesses to sustain earnings growth.

OCBC’s net interest margin fell to 1.76% from 2.04% a year earlier, while net interest income declined 5% to S$2.22 billion as lower rates began compressing lending profitability. That weakness was offset by a surge in non-interest income, which climbed 23% to a record S$1.61 billion. Fee income rose 24%, driven largely by wealth-management activity. Wealth fees jumped 34% to S$422 million, while net new money inflows reached S$5 billion during the quarter.

The results are a boost to Singapore’s growing role as one of Asia’s dominant private banking and wealth management centers, benefiting from capital inflows tied to rising affluence in Southeast Asia and continued global demand for politically stable financial hubs.

“Our wealth business is actually very diversified. We draw wealth from all over the world,” Tan said.

He added that the bank expects double-digit annual growth in wealth fees and assets under management going forward.

The earnings also come during a strategic transition period for OCBC. Earlier this week, the lender announced an agreement to acquire parts of HSBC’s wealth and premier banking operations in Indonesia, marking the first major transaction under Tan since he became chief executive in January.

Regional lenders increasingly see wealth management, cross-border banking, and treasury services as more resilient profit engines in an environment where loan growth is moderating and margins are narrowing.

OCBC’s results complete a relatively resilient earnings season for Singapore banks. Larger rival DBS Group recently posted stronger-than-expected quarterly profit, while United Overseas Bank also exceeded analyst forecasts despite softer overall earnings momentum.

Still, the tone from executives across the sector has become noticeably more cautious. The combination of geopolitical instability, energy volatility, slowing global trade, and uncertain monetary policy is increasingly forcing banks to prepare for a more difficult operating environment after years of unusually strong profitability.