ADIB-Egypt released detailed financial statements for FY17. ADIB-E delivered strong earnings growth of 53% Y-o-Y, on strong expansion in net interest income and fee income, as well as lower provisioning costs Y-o-Y. The slight earnings beat relative to our forecast (actual FY17 net income of EGP633mn came above our estimate of EGP612mn), driven by: (i) lower-than-expected provisioning costs and (ii) higher-than-expected fee income. 
 
Net income in 4Q17 of EGP131mn increased 3% Y-o-Y (-18% Q-o-Q), 19% ahead of our estimate of EGP110mn, on higher-than-expected revenues (+22% Y-o-Y, unchanged Q-o-Q), and lower-than expected provisioning costs (-49% Y-o-Y, -22% Q-o-Q). 
 
Key highlights:
        Strong revenues in FY17 and in 4Q17. Net interest income in 4Q17 rose 24% Y-o-Y and was fairly stable Q-o-Q, driven by growth in assets and despite a decline in the net interest spread. The spread fell 36bps Q-o-Q to 566bps, but it is worth noting that 3Q17 was an unusually high level for spreads. At 566bps in 4Q17, they are still higher than the 550bps level of 1H17. 
 
        Total loan growth at 7% Y-o-Y; EGP loan growth strong at 31% Y-o-Y. Loan growth was slow this quarter, at 0.2% Q-o-Q (up 7% Y-o-Y), after 3% Q-o-Q growth in 3Q17. FX loans were stable Q-o-Q in 4Q17, while EGP loans grew 2% Q-o-Q. On a Y-o-Y basis, loan growth was very strong for EGP loans, up 31% Y-o-Y; however, the 28% Y-o-Y drop in FX loans capped total loans’ growth to only 7% Y-o-Y (this has been a common industry trend during 2017). It is worth highlighting, in our view, the strong momentum in retail loan growth, +22% Y-o-Y despite the decline in the purchasing power of Egypt households. Deposits rose 6% Q-o-Q and 17% Q-o-Q, mainly driven by EGP deposits (+24% Y-o-Y and +6% Q-o-Q).
 
        Slight improvement in credit quality Q-o-Q. ADIB-E’s NPL ratio improved in 4Q17, falling to 2.7%, from 2.8% last quarter (and 2.6% in 4Q16). Absolute NPLs were flat Q-o-Q. NPL coverage rose to 137.5% in 4Q17.
 
Abu Dhabi Islamic Bank - Egypt: EGP17.67 as of 26 Feb. 2018, Rating: Buy, TP: EGP17.50/share, MCap: USD200mn, ADIB EY/ADIB.CA