• Earnings up 17% Y-o-Y, on strong NII and lower cost of risk CIB reported 1Q16 net income of EGP1,292mn, up 17% Y-o-Y and 13% Q-o-Q, and 6% ahead of our forecast, as provisioning came in below our estimate. Net interest income growth was strong Y-o-Y, up 22%, but non-interest income was poor this quarter, due to weak fees and lower Y-o-Y trading income. Provisioning fell to 179bps in 1Q16, down from 305bps in 1Q15. Management guidance calls for c25% Y-o-Y increase in earnings in 2016, which we believe is supported by our expectation of strengthening NIMs and CIB’s current excess provisions. We reiterate our Neutral rating on the stock, as we see minimal catalysts for expansion in valuation multiples in the short term due to continued weakness in the macro picture in Egypt.
• Loan growth strong on EGP devaluation; focus on low-cost EGP deposits continues While there has been a clear deceleration in corporate lending demand in the past few months, CIB reported a strong 6% Q-o-Q increase in loans (+13% Y-o-Y). EGP-denominated loans increased just 2% Q-o-Q, but USD loans surged 12% Q-o-Q, on the back of the EGP devaluation in mid-March. Deposit growth of 9% Q-o-Q was also boosted by currency movements; however, EGP-denominated deposit growth was also strong, up 5% Q-o-Q. The share of low-cost deposits was unchanged Q-o-Q at 44%. The net interest spread increased by 5bps Y-o-Y on wider asset yields, and fell 62bps Q-o-Q as asset yields in 4Q15 were a very high base.
• NPLs rise in 1Q16, but CIB continues to have a large provision buffer NPLs were fairly stable throughout 2015, but there was a 26% Q-o-Q increase in NPLs in 1Q16, and the NPL ratio rose to 4.7% from 3.97% in Dec. 2015. NPL coverage fell from 190% in Dec. 2015 to c170% in 1Q16. Provisioning costs were low this quarter, but CIB has been building surplus provisioning in the past few quarters, as a conservative measure and also as a tax shield. According to management, earnings in excess of c25% Y-o-Y growth during 2016 will be used as additional provisions.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel