Guidance on earnings growth, deposit growth and loan growth in 2018-2019: CEO Hussein Abaza reiterated net profit guidance of EGP9.5bn in FY2018 (before profit sharing), which implies an increase of 26% Y-o-Y; guidance for earnings growth in 2019 is 20-23%. Loan growth should end 2018 at 15-20%, with around 15% loan growth in 2019. Deposit growth, in EGP, of c20% in 2018 and 2019.
 
Capacity utilisation continues to increase, but management does not expect capex loan growth next year: Utilisation rates should end the year at c90% for some of the corporates they bank with. However, they do not think that these corporates will be deploying capex next year because of high interest rates. The key driver of loan growth on the corporate segment will be working capital next year.
 
Consumer purchasing power recovering: Management sees this as very positive for GDP growth. Retail loan growth rates for CIB have also improved in 2018. 
 
Deposit growth driven strategy will continue in 2019: Until interest rates come down, and until capex loan growth recovers, CIB will continue to focus on increasing low-cost EGP deposits, with shorter tenors. Excess liquidity that cannot be used as lending, will be invested in T-Bills. 
 
Loan growth was weak in 3Q18, expect a slight improvement in 4Q18: Customer loans fell 2% Q-o-Q in 3Q18. They reduced exposure to three accounts with risk 6 (risk rating scale of customers is 1-10, as per the CBE), which they were not very comfortable with, and these were replaced with risk 3-4 customers. There should be some loan growth in the last quarter of the year. 
 
Net interest margin - management expects a range of 4.8-5% over next two-three years: The current net interest margin (ex-one offs) is at 5.5%. When interest rates come down and loan growth recovers, they could see margins fall, but margins should be within a range of 4.8-5% in the next three years.  The margin loss, once capex loan growth recovers, should be compensated with fee income. Lately, they have improved margins because of higher yields on T-Bills, and because expensive CDs issued after the devaluation have been replaced with time deposits at lower rates.
 
Cost of risk: Management did not give any particular guidance on the cost of risk, but they will continue to have a conservative strategy. They continue to build additional provisions to be in a situation where, should the top largest corporate customers default (hypothetically), the bank’s earnings will not be affected.

Elena Sanchez-Cabezudo, Ahmed El Shazly

 
CIB: EGP80.57 as of 08 Nov 2018, Rating: Buy, TP: EGP105.00/share, MCap: USD5,265mn, COMI EY/COMI.CA