Commercial Bank Qatar's Journey in 2023 – Impairments Reduction and Investment Management Ease Challenges Amidst Net Interest

• The company's interest income grew by 30% year over year, but the net interest income margin experienced a substantial decline.

• Commercial Bank’s shares fell as much as 24% during 2023.

• Net profit was pressured by a challenging macroeconomic backdrop and a high cost of credit, which was offset by better investment performances and improved cost efficiency.

The stock price of Commercial Bank experienced an increase throughout the year 2023, starting at 5.00 riyals per share and closing the year at 6.20 riyals per share, representing an increase of approximately 24%. During the same year, significant insider activity was recorded, with individuals selling shares amounting to 4,730,665 QAR.

Here are the key numbers:

● Interest Income: 9,537 million QAR vs. 7,330 million QAR in 2022 (a 30% YoY increase).

● Net Interest Income: 3,867 million QAR vs. 3,963 million QAR in 2022 (a 2% YoY decrease).

● Net Profit: 3,010 million QAR vs. 2,811 million QAR in 2022 (a 7% YoY increase).

● Earnings per Share: 0.708 QAR/share vs 0.657 QAR/share in 2022 (a 7% YoY increase).

● Dividend per Share: 0.250 QAR/share as in 2022 (no YoY change).

In a surprising turn of events, Commercial Bank Qatar witnessed a notable decline in its net interest margin, which dropped from 54% in 2022 to a mere 40%. This decline can be attributed to the persistent increase in interest rates, leading to a substantial rise in borrowing costs. This phenomenon has overshadowed the otherwise positive growth in interest income. The initiation of this trend by major central banks in late Q1 2022 has continued, with contributions from central banks in emerging countries, suggesting a sustained impact.

Despite experiencing a significant surge in interest income, the challenging landscape has resulted in a decrease in net interest income. Consequently, the company has faced obstacles in realizing a corresponding boost in overall profit. Overcoming these challenges and revitalizing profit growth now stands as a top priority on Commercial Bank Qatar's agenda.

The adverse movement in net interest margin had a tangible impact on the net profit, amounting to 1,289 million QAR. This impact was, to some extent, mitigated by the increase in interest income, which totaled 1,194 million QAR. The company remains focused on strategic measures to navigate these challenges and restore a favorable trajectory for its financial performance.

Amid a challenging macroeconomic environment and growing concerns of a recession, the banking sector encountered heightened credit risk. Despite these circumstances, the Commercial Bank took a strategic approach by reducing impairments at a rate exceeding the decline in loans. This decision underscores management's confidence in the current level of credit and other risks, signalling their proactive stance. Notably, this prudent move resulted in a substantial positive impact on the company's profit, amounting to 346 million QAR compared to 2022.

Upon scrutinizing our investment performances, a noteworthy improvement becomes apparent. In contrast to the figures observed in 2022, this enhancement has significantly contributed to a positive influence on the company’s profits, manifesting in a substantial increase of 247 million QAR. Despite this positive development, it is important to note a concerning trend in the realm of commissions and fees, where a negative impact is observed, amounting to 347 million QAR. This analysis underscores the need for a comprehensive understanding of both the positive and negative factors influencing our financial outcomes.

Turning our attention to expenses, it is crucial to highlight the notable rise in staff expenses. This increase has exerted a negative impact on the net profit, totaling 176 million QAR. This information emphasizes the significance of understanding the specific components influencing our financial outcomes, particularly in the context of staffing costs.

Given the international diversification of the company's operations, it conducts business in countries experiencing hyperinflation. In compliance with IAS 29, it is mandatory to present the consolidated financial statements in accordance with the measuring unit in effect at the balance sheet date. This entails adjusting non-monetary assets and liabilities to accommodate changes in the currency's general purchasing power. Regrettably, these adjustments had a detrimental effect on the company's profits, resulting in a substantial impact of 146 million QAR. This underscores the importance of understanding and addressing the challenges posed by hyperinflation in global operations.

This unfavorable movement was well compensated by a favorable shift in the net fair value of derivatives, amounting to 289 million QAR.

Amidst the backdrop of macroeconomic and business challenges, the Commercial Bank has demonstrated its agility by effectively harnessing its diversified business model and robust balance sheet to mitigate an array of risks. This strategic approach not only facilitates the company's navigation through complex economic conditions but also bolsters stability and resilience within its operations. Through the diversification of its business lines and the maintenance of a strong financial position, the Commercial Bank establishes a sturdy foundation for coping with potential market challenges and uncertainties. Notably, in 2023, this resilience is evident as the decline in the net interest margin was successfully counterbalanced by other revenue sources, alongside an improvement in cost efficiency.

For more comprehensive information, please refer to the reliable financial information source, http://sahmik.com.