• 1Q16 net income up 34% Y-o-Y, 27% ahead of our estimate Credit Agricole Egypt reported 1Q16 net income of EGP316mn, up 34% Y-o-Y and 9% Q-o-Q, exceeding our forecast of EGP249mn by 27% on stronger-than-expected net interest income and lower-than-expected provisioning costs. This was a good set of results, in our view, with strong net interest spreads, stable credit quality and contained costs growth. Areas of weakness were, as expected, fee income and deposit growth. Despite weak fees, net banking income increased 11% Y-o-Y (+11% Q-o-Q), and operating costs by just 5% Y-o-Y (-2% Q-o-Q), leading to solid operating earnings growth of 14% Y-o-Y. We reiterate our Buy rating on the stock.
• Flat funding costs, stronger asset yields drive 19bps Q-o-Q increase in net interest spread The net interest spread widened by 19bps to 515bps in 1Q16, thanks to higher asset yields and broadly stable funding costs Q-o-Q. Despite the boost of the devaluation of the EGP to USD-denominated loans and deposits, volume growth was weak, with total loans increasing 2% Q-o-Q and total deposits by 3% Q-o-Q, suggesting weak underlying lending demand. Weak volumes from the trade finance business drove, as expected, weak fee income, down 3% Y-o-Y and 2% Q-o-Q.
• NPLs stable Q-o-Q Credit quality has been a key positive surprise for Credit Agricole Egypt during 2015 and also during 1Q16, with NPLs broadly unchanged on a Q-o-Q basis; the NPL ratio fell from 3.1% in December 2015 to 2.9% in March 2016, with this being one of the lowest levels in the Egypt banking system. Provisioning costs were fairly low this quarter, as a result, at just 4bps of gross loans. NPL coverage improved slightly Q-o-Q to c195%.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel