ADIB Egypt reported 3Q16 net income of EGP89mn, an increase of 231% Y-o-Y and 19% Q-o-Q, with 3Q15 being a very low base due to a one-off provisioning charge. The actual earnings in 3Q16 were in line with our estimate of EGP88mn. Earnings growth Y-o-Y was driven by i) strong revenue growth with all net interest income, fee income and trading and investment income growing at strong double-digits Y-o-Y; and ii) a decline in tax charges with the effective tax rate falling to 59%, from 79% in 3Q15.   Main positives: i) Spreads expansion both Q-o-Q and Y-o-Y; ii) Strong net interest income and fee income; iii) Higher-than-expected investment and trading income; iv) Decline in the NPL ratio Q-o-Q   Main negatives: i) Weak loan growth and deposit growth Q-o-Q; ii) Higher-than-expected provisioning costs; iii) Higher-than-expected tax charges   Our view on the results: Loan growth slowed to 2% Q-o-Q (+19% Y-o-Y), compared to 8% Q-o-Q in 2Q16, with most of the growth stemming from retail loans, up 28% Q-o-Q (39% Y-o-Y), which now account for 43% of the loan book (from 38% in 2Q16). Corporate loan growth slowed to 3% Q-o-Q (24% Y-o-Y) in 3Q16, down from 11% Q-o-Q in 2Q16. The net interest spread widened 27bps Y-o-Y and 14bps Q-o-Q as higher asset yields outpaced lower cost of funding. All revenue items were strong this quarter: net interest income and fee income both rose 42% Y-o-Y, and investment and trading income edged up 83% Y-o-Y, leading to revenue growth of 41% Y-o-Y. Operating costs growth was contained at 21% Y-o-Y and below revenue growth; hence, the cost-to-income ratio improved further to 47% in 3Q16, down from 48% in 2Q16 and 55% in 3Q15, in line with the bank’s strategy to improve its operational efficiency since its restructuring. Credit quality further improved Q-o-Q, with the NPL ratio falling 57bps Q-o-Q to 4.7% in September 2016, driven by volume growth, with absolute NPLs broadly flat Q-o-Q. Cost-of-risk stood at 182bps, down 45bps Q-o-Q, but up from a reversal of 59bps in 3Q15. We believe provisioning costs are largely linked to ADIB Egypt, aiming at increasing NPL coverage, which now stands at 69%, from 47% in end-2015, when a single customer exposure drove up NPLs. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   Abu Dhabi Islamic Bank - Egypt: EGP4.62 as of 13 November 2016, Rating: Buy, FV: EGP5.20 per share, MCap: USD62mn, ADIB EY / ADIB.CA