Al Baraka Bank of Egypt reported 1Q2016 net income of EGP127mn, a strong increase of 101% Y-o-Y and 126% Q-o-Q. Actual earnings in 1Q16 came in largely ahead of our forecast of EGP72mn, owing mostly to lower-than-expected provisioning costs that were exceptionally low this quarter (-81% Y-o-Y; -88% Q-o-Q and 84% below our estimate).   Main positives: i) Very strong loan growth (+6% Q-o-Q and +10% Y-o-Y); ii) Strong net interest income and fee income; iii) Lower-than-expected provisioning costs; iv) Decline in the NPL ratio both Y-o-Y and Q-o-Q   Main negatives: i) Net interest spread compression; ii) Higher-than-expected tax charges   Our view on the results: A strong set of results, in our view. Loan growth was very strong at 11% Q-o-Q (+20% Y-o-Y), boosted mainly by corporate loans that increased 10% Q-o-Q (+24% Y-o-Y). The increase in loans was not boosted by the devaluation of the EGP, as it was driven mainly by EGP-denominated loans, which increased 11% Y-o-Y. Volume growth drove net interest income and fee income, which increased 24% and 16% Y-o-Y, respectively. Also, provisioning costs were a key positive this quarter, with loan loss provisions at just EGP2mn, with the cost of risk at 7bps compared to 184bps in 1Q15. Credit quality improved in 1Q16, with the NPL ratio declining to 4.9%, down from 5.2% in December 2015, thanks to volume growth, while absolute NPLs increased 3% Q-o-Q. NPL coverage continues to be at comfortable level at 137% in March 2016, almost flat compared to December 2015. The key negative we would highlight in the results is spreads, which fell Q-o-Q on lower asset yields. This comes as a surprise as the bank increased strongly higher margin EGP loans. Capital adequacy ratio stood at 11.9% in March 2016, a level which is tight considering the new minimum of 10.63% by end of 2016. The bank did not distribute dividends for FY2015, and we believe an increase in common equity would be warranted during 2016, especially if growth momentum continues to be as strong as it was during this first quarter. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   Al Baraka Bank Egypt: EGP9.02 as of 15 May 2016, Rating: Buy, FV: EGP12.43 per share, MCap: USD139 million, SAUD EY / SAUD.CA