• Raise FV to EGP46.38, but little room for multiple expansion ST We raise our net income estimates by 4% for 2016 and 7% for 2017, to reflect the positive impact of the recent hike in policy rates (+150bps on 17 March) on net interest margins. We increase our FV to EGP46.38 (from EGP44.1), but downgrade our rating on CIB to Neutral from Buy as our FV implies only 8% upside. Following the recent rally (in EGP terms, CIB’s share price was up 8% last week and 15% post EGP devaluation in mid-March), CIB’s 2016e P/B has risen to 2.6x. We believe current multiples are supported by its strong ROE of 30% and earnings growth of c20% p.a. in 2016e-17e. However, we believe continuing economic uncertainty, FX shortages and lack of clarity on key structural reforms will cap further multiples expansion for now.
• Deposit growth to continue to drive earnings growth in short term, despite weakening lending demand CIB has focused on low cost EGP deposit growth for the past three years, with total deposit growth averaging a strong 25% p.a. While we expect loan growth to weaken this year to 9% (from 17% in 2015), we believe that revenue growth will remain underpinned by strong deposit growth, particularly in the current environment of widening NIMs thanks to higher yields on government securities. NIM expansion and asset volume growth will in our view offset weak fee income due to slower trade finance volumes.
• Management reiterates c25% earnings growth guidance for 2016 Management guidance is for cEGP5.7 bn net income (before employee profit sharing), i.e., c25% Y-o-Y growth. While we believe that net interest margins could be an area of positive surprises, earnings above c25% Y-o-Y growth will be added as additional provisions, according to management, similarly to 2014-15. NPL coverage rose to 190% in Dec 2015, and if NPL formation remains as contained as it was in 2015, NPL coverage is likely to rise further. Potential write-backs of excess provisions could support earnings growth beyond 2016, should NIMs begin to normalise.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel