• Earnings beat our forecast on strong spreads and low cost of risk Credit Agricole Egypt’s 2Q16 net income of EGP314mn rose 30% Y-o-Y (-1% Q-o-Q), thanks to 13% Y-o-Y revenue growth, lower provisioning costs and tax charges. Actual earnings were 5% above our forecast of EGP298mn, as spreads, fee income, and the cost of risk all surprised positively. Despite slow loan growth, results were overall pretty solid, with double-digit growth in net interest income Y-o-Y, stronger spreads (Y-o-Y and Q-o-Q) and resilient credit quality.
• Very subdued corporate loan growth; solid growth in retail loans, albeit decelerating from previous quarters Total loan growth for CAE was slow, up just 3% Y-o-Y and flat Q-o-Q, below system loan growth of 17.2% Y-o-Y. CAE’s corporate loans fell 2% Y-o-Y and 1% Q-o-Q. The retail segment continues to have better loan growth dynamics for CAE than the corporate sector, with retail being a key area of focus for the bank over the past two years. CAE’s retail loans increased 15% Y-o-Y and 3% Q-o-Q. Growth in retail loans is still solid but has decelerated from its average growth of c19% Y-o-Y over the past five quarters, likely due to stricter lending conditions on the retail segment imposed by the CBE earlier this year.
• Spreads in sync with recent benchmark rates movement; credit quality stable Spreads were strong this quarter, up 87bps Y-o-Y and 30bps Q-o-Q on higher asset yields following the two increases in benchmark rates this year. Funding costs increased, but only slightly Q-o-Q. The expansion in spreads drove a strong 21% Y-o-Y and 8% Q-o-Q increase in net interest income. Fee income was better than expected, but there was negative growth on a Y-o-Y basis of 3% (+5% Q-o-Q), as trade finance fees continue to be negatively impacted by the FX shortage. Provisioning costs were low this quarter, with the cost of risk at 50bps, down from 76bps in 2Q15. Credit quality was stable Q-o-Q with the NPL ratio unchanged at 3.05%.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel