• Trading gains drive net income 5% ahead of forecasts CIB’s 2Q16 net income of EGP1,464mn rose 28% Y-o-Y and 13% Q-o-Q, beating our forecast of EGP1,390mn by 5% (and Bloomberg consensus of EGP1,373mn by 7%), on very strong non-interest income (mainly trading and investment income), as well as lower-than-expected provisioning, with both more than offsetting weaker-than-expected net interest income. On a Y-o-Y basis, the pace of net interest income growth was solid, up 17% Y-o-Y, although decelerating from the growth reported in previous quarters.
• Q-o-Q decline in spreads and deceleration in deposit growth were key negative surprises We had expected the increase in benchmark rates in mid-March would have led to stronger spreads in 2Q16. While asset yields did increase Q-o-Q by 13bps, funding costs increased by 37bps Q-o-Q, resulting in a 24bps decline in spreads. Management mentioned in the earnings call that there was a shift in the balance sheet to lower-maturity instruments (1-w deposits at the CBE), which explained the modest increase in asset yields. Customer loans were flat Q-o-Q (+10% Y-o-Y), and deposit growth decelerated, with flat growth on a Q-o-Q basis, due to some one-off corporate deposit outflows in 2Q16, and despite strong retail deposit growth.
• Management reiterates 25% earnings growth in FY16 Deposit growth guidance of 20% is lower than previous management’s estimates of c30%, but the guidance for earnings growth is unchanged at 25% for FY16. Loan growth will continue to be sluggish, according to management, as long as there is shortage of FX in the system. Credit quality deteriorated slightly Q-o-Q (NPL ratio rose to 4.9% compared to 4.7% in March 2016), but NPL coverage continued to be strong at 170%. Provisioning charges continue to be driven by tax shield and by CIB’s prudent policy, given the uncertain macro backdrop in Egypt.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel