CIB reported 3Q16 net income of EGP1,711mn, up 29% Y-o-Y and 17% Q-o-Q, 16% above our forecast of EGP1,472mn, thanks to higher-than-expected net interest income (NII) and lower-than-expected loan loss provisioning costs. Strong NII and lower provisioning were also key drivers of Y-o-Y earnings growth and offset a Y-o-Y decline in fee income, which has been under pressure for CIB and Egypt banks, at large, because of the shortage of FX, limiting customers’ ability to open letters of credit. NII rose 21% Y-o-Y and 12% Q-o-Q, thanks to interest earnings asset growth of 6% Q-o-Q, as well as expansion in spreads, with the increase in asset yields offsetting higher funding costs. We believe the recent 300bps rates increase by the CBE will lead to further net interest spread expansion. Our estimate assumes that higher asset yields will continue to more than offset upward pressure in deposit costs; we expect higher funding costs especially on certificates of deposits (25% of total deposits), where private sector banks have started to hike rates to levels closer to those of public sector banks in order to prevent outflows of CDs. CIB’s deposit growth improved in 3Q16 to 5% Q-o-Q (+15% Y-o-Y), and the deposit mix improved slightly; savings accounts and demand deposits now account for 47% of total deposits. Absolute NPLs rose 8% Q-o-Q, driving an increase in the NPL ratio to 5.3% in Sept-16, up from 4.9% in June-16. The Q-o-Q increase in NPLs is small, however, the increase since Dec-15 is 44%. (Elena Sanchez-Cabezudo, CFA, Rajae Aadel, company disclosure)