• Raise earnings forecasts in 2016-17 on higher NIMs, deposit growth We cut our loan growth estimates for Egypt banks at the end of 2015, as the continued shortage of FX delayed corporate investment. System data shows a weaker expansion in corporate loans in 2H15 vs 1H15 and CIB’s loan growth was slow in 4Q15. We further cut our loan growth estimates for CIB to 9% for 2016 and 13% for 2017 (vs 16%), but raise our earnings forecasts for 2016-17 by c9% given its focus on low cost EGP deposits continuing to underpin earnings growth of c20% in 2016 (incl. cEGP380 million in gains from sale of CI Capital). Our FV is broadly unchanged at EGP44.1 after increasing the CoE by 50bps to 11.5%. We reiterate our Buy rating given attractive multiples (P/E of 7.2x, P/B of 1.9x), and strong ROE at c29% in 2016-17e, the highest in our MENA banks universe.
• A sharp fall in NIMs is an unlikely scenario, in our view CIB has historically had a high ROE, but it has risen further from 25.1% in 2010 to 29.9% in 2015 due to NIM expansion (+184bps to 5.3% in 2015). CIB’s recent business model of growing low cost EGP deposits and placing liquidity in high yielding T-Bills and T-Bonds will, according to management, hold in 2016, should loan growth fail to pick up. We do not factor in a strong fall in NIMs in 2016 (-c20bps), as long as there continues to be strong EGP liquidity in the system. Furthermore, our house view is for higher rates in 2016, which is positive for Egypt banks’ NIMs.
• Limited room for a further increase in cost of risk The cost of risk was high in 2015 at c300bps, despite moderate NPL formation. CIB has used its strong revenue in the past 2-3 years to increase provisioning buffers (NPL coverage at c190% in 2015) as well as to increase its tax shield. With the 2015 cost of risk at a very high base, we believe a sharp increase is unlikely, even assuming a deterioration in Egypt’s macro backdrop and higher NPLs in 2016. We forecast the cost of risk at 220bps in 2016; management has said that profits in excess of c20-25% growth in 2016 might be used for booking further provisions on macro uncertainty.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel