Doha Bank's 2024: Shrinking Interest Margins, Surprising Gains from Non-core Drivers Fuel Profit Surge
• The company's interest income grew by 13% year over year, but the net interest income margin experienced a substantial decline.
• Doha Bank’s shares increased as much as 9% during 2024.
• Net profit was pushed up by investment income, foreign exchange gains, reduced impairments and absence of litigation loss which incurred in 2023.
Doha Bank's stock demonstrated impressive resilience in 2024, starting the year at 1.83 riyals per share and closing the first quarter at 1.99 riyals per share, reflecting a substantial 9% increase in value. This performance significantly outperformed the Qatar Stock Exchange (QSE) Index, which saw an approximate 2% decline over the same period. Furthermore, insider confidence in the bank was evident, with insiders purchasing shares worth 23 million QAR during this time. This combination of price appreciation and insider activity highlights investor confidence and the bank's potential for sustained growth.
Here are the key numbers:
● Interest Income: 6,357 million QAR vs. 5,602 million QAR in 2024 (a 13% YoY increase).
● Net Interest Income: 1,992 million QAR vs. 2,116 million QAR in 2024 (a 6% YoY decrease).
● Net Profit: 851 million QAR vs. 769 million QAR in 2024 (a 11% YoY increase).
● Earnings per Share: 0.275 QAR/share vs. 0.248 QAR/share in 2024 (a 11% YoY increase).
● Dividend per Share: 0.100 QAR/share vs. 0.075 QAR/share in 2024 (a 33% YoY increase).
Doha Bank experienced a notable contraction in its net interest margin, which fell from 38% in 2023 to 31% in 2024. This decline is primarily attributed to the impact of rising global interest rates, which increased borrowing costs at a pace exceeding the growth of interest income. The trend began in late Q1 2022, as major central banks initiated rate hikes to combat inflation, continuing through Q2 2023. Additionally, central banks in emerging markets followed suit with their own rate adjustments, compounding the effects on borrowing costs. The drop in net interest margin suggests a need for enhanced loan portfolio management, as effective strategies in this area could help mitigate the impact of future rate fluctuations and improve overall profitability. This shift underscores the importance of proactive measures to adapt to evolving market conditions and maintain financial stability.
Despite a substantial increase in interest income, the unfavorable trend hampered the company's ability to translate it into a corresponding uptick in profit. The escalating borrowing expenses posed a formidable challenge to Doha Bank's profitability during this period. While the positive impact on net profit resulting from the surge in interest income amounted to 285 million QAR, this gain was largely offset by a decline in net interest margin, exerting an adverse impact on the net profit, which stood at 410 million QAR.
Against the backdrop of a challenging macroeconomic environment and mounting concerns regarding an impending recession, the banking sector faced heightened credit risk. However, Doha Bank strategically opted to reduce impairments to a lower amount than in 2023.
The impact of this decision became evident in the company's financial performance for 2024, showcasing a positive impact on profit amounting to 71 million QAR compared to the previous year.
During 2024, the company decreased gain from investment activities. This negative shift had a significant impact on profitability, making an adverse impact of a remarkable amount of 33 million QAR. Apart from its primary operations, Doha Bank has a presence in the insurance sector. Notably, there has been a significant drop in income from this segment when compared to the year 2023. This increase has had an adverse effect on the net profit, amounting to 66 million QAR.
A detailed analysis of Doha Bank's income statement for the fiscal year 2023 highlights a significant litigation loss amounting to 162 million QAR. This loss arose from a legal dispute involving the Group's UAE operations and one of its customers. The unfavorable court ruling required the Group to pay the specified amount, significantly impacting profitability for that year. However, this expense was a one-time occurrence and did not carry over into 2024. Its absence has resulted in a direct positive impact on the Group’s net profit for the year, underscoring the importance of resolving legal challenges and avoiding recurring liabilities. The elimination of such extraordinary expenses has provided a cleaner financial slate, enabling the Group to focus on improving its operational performance and profitability.
For more comprehensive information, please refer to the reliable financial information source, http://sahmik.com.