• Net interest income and provisions drive 14% earnings beat CIB reported 4Q2015 net income of EGP1,146 million, up 11% Y-o-Y (-14 % Q-o-Q from a high base in 3Q2015 due to the lower tax rate in the 9M2015 period). Actual earnings were 14% above our forecast of EGP1,009 million (4% below Bloomberg consensus). Net interest income and provisioning costs surprised positively, more than offsetting weaker-than-expected fees and trading income. FY2015 net income was EGP4,729 million, up 26% Y-o-Y, exceeding management guidance of EGP4.5-4.6 billion, and our forecast of EGP4,593 million by 3%. We believe the 4Q results were mixed, with spreads and credit quality surprising positively, but loan growth and fee income missing our expectations.
• Loan growth slows in 4Q2015, but spreads continue to increase The loan book fell 1% Q-o-Q, despite CIB consolidating Citi’s retail portfolio of EGP1.1 billion in 4Q2015. Corporate loan growth in Egypt tends to slow in 4Q as companies repay debt ahead of their year-end financial reporting, and this could have been a reason for the weak loan growth in 4Q2015. Loan growth ended the year at 17% Y-o-Y, below management indications of c25%. The net interest spread however rose by 14bps, thanks to higher asset yields and a slight decline in funding costs. Fee income fell Y-o-Y and Q-o-Q, suggesting a decline in trade finance volumes due to the shortage of FX in Egypt.
• NPL coverage increases to 188%; NPLs fall Q-o-Q Non-performing loans (NPLs) were broadly flat Y-o-Y and fell 10% Q-o-Q, mainly due to write-offs. The NPL ratio fell to 3.97% (from 4.42% in 3Q2015). CIB in the past two years has focused on setting aside conservative provisioning charges, and NPL coverage has risen to 188%. We believe a lower cost of risk will be a key driver of earnings growth in 2016. Management is hosting an investor call today at 6pm UAE time.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel