Credit Agricole Egypt’s 3Q16 net income of EGP326mn rose 21% Y-o-Y (4% Q-o-Q), beating our forecast of EGP305mn by 7%, with stronger-than-expected net interest income offsetting weaker-than-expected fee income and higher-than-expected provisioning costs.   Key positives: i) Strong net interest spread expansion both Y-o-Y and Q-o-Q; ii) Higher-than-expected net interest income; iii) Higher-than-expected deposit growth   Key negatives: i) Slow loan growth; ii) Weak fee income; iii) Higher-than-expected provisioning costs   Our view on the results: A good set of numbers. Net interest income growth was strong, up 33% Y-o-Y, as the net interest spread increased by 113bps (+38bps Q-o-Q) on higher asset yields. Strong NII more than offset weak fee income, which fell 12% Y-o-Y and 14% Q-o-Q, due mainly to weak trade finance volumes on scarcity of USD in the banking system. Total banking income increased 21% Y-o-Y and 9% Q-o-Q. Costs efficiency also improved, as operating costs increased 10% Y-o-Y and 2% Q-o-Q, well below revenue growth (the cost to income ratio is currently 31%, compared to 34% a year earlier). Loan growth recovered to 0.7% Q-o-Q (3% Y-o-Y) in 3Q16, compared to a decline of 0.1% Q-o-Q in 2Q16, but remained subdued, owing mainly to a decline in corporate loans of 0.5% Q-o-Q and 1.5% Y-o-Y. Retail loans increased 14% Y-o-Y and 4% Q-o-Q. Provisioning costs surged in 3Q16, with the cost of risk rising to 177bps in 3Q16, from 104bps in 3Q15 and 50bps in 2Q16. There was a small increase in NPLs of 17% Q-o-Q,  driving an increase in the NPL ratio to 3.52% in 3Q16, from 3.05% in 2Q16. This comes after seven consecutive quarters of unchanged NPLs. NPL coverage remains very strong at c180%. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   Credit Agricole: EGP31.01 as of 10 November 2016, Rating: Buy, FV: EGP31.44 per share, MCap: USD597mn, CIEB EY / CIEB.CA