• Earnings up 144% Y-o-Y on strong revenue; beat estimate EGB’s 2Q16 net income of EGP147mn surged 144% Y-o-Y and 57% Q-o-Q, beating our forecast of EGP95mn by 55%, due to higher-than-expected revenue that more than offset higher-than-expected operating costs. Strong balance sheet growth and higher spreads drove net interest income, up 114% Y-o-Y and 32% Q-o-Q, coming in 17% above our estimate. Investment and trading income were also high in 2Q16. Revenue growth was very strong at 151% Y-o-Y and 45% Q-o-Q.
• Loan and deposit growth continue to surprise positively Since the new management came on board in March 2015, EGB has set an ambitious growth and transformation plan, which has led to strong operating expenses growth, but also to very strong growth in loans and deposits. Loans increased 29% Q-o-Q (95% Y-o-Y) mostly driven by EGP-denominated loans that rose 43% Q-o-Q. Deposit growth was also strong at 19% Q-o-Q (148% Y-o-Y). The cost to income ratio worsened by 7pps to 47%, as the bank is heavily investing in human capital, IT systems and branches to strengthen the franchise.
• Credit quality improves; CAR is tight The NPL ratio declined to 3.1%, driven by lower absolute NPLs (-5% Q-o-Q) and a higher gross loan base. The strong and rapid growth in EGB’s balance sheet weighed on its capital adequacy ratio, which fell to 11.7% in June 2016, down from 12.5% in March 2016. This is now close to the minimum regulatory requirement of 10.625%, although it excludes interim profits in 2016. We expect the bank’s CAR to improve in 3Q16 as the first tranche of EGB’s rights issue of USD32mm, which was executed in 2Q16, has not yet been reflected in its shareholders’ equity as of June 2016 and was booked as a reserve under capital increase.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel