Faisal Islamic Bank reported a net income for 1Q16 of EGP275mn, an increase of 40% Y-o-Y and 157% Q-o-Q. Actual earnings in 1Q16 came in 36% ahead of our forecast of EGP202mn.  The key drivers of the earnings beat are i) higher-than-expected non-interest income; ii) lower-than-expected operating costs and iii) a one-off FX revaluation gain of EGP210mn booked by in 1Q16 (stemming from part of its shareholders’ equity being denominated in USD, which leads to gains in the event of a devaluation of the EGP), although it was partly offset by a EGP156mn impairment for assets available for sale and shares in associates and subsidiaries.   Main positives: i) Loan growth recovery to 2% Q-o-Q; ii) Higher-than-expected non-interest income; iii) Lower-than-expected operating expenses; iv) Decline in NPL ratio both Q-o-Q and Y-o-Y   Main negatives: i) Weak net interest income; ii) Net interest spread compression Y-o-Y and Q-o-Q   Our view on the results: Loan growth recovered to 2% Q-o-Q (4% Y-o-Y), following a decline of 4% Q-o-Q in 4Q15, driven by both EGP loans (+2% Q-o-Q) and USD loans (+4% Q-o-Q) that benefitted from the EGP devaluation last March. Net interest spread shrunk both Y-o-Y (-39bps) and Q-o-Q (-8bps) on higher funding costs. As a result, net interest income was weak, up by just 2% Y-o-Y. However, non-interest income doubled Y-o-Y, fueled by strong fee income, trading income, FX income, and dividend income. Operating expenses declined with the costs-to-income falling to 24%, compared to 30% in 1Q15. Credit quality further improved with the NPL ratio falling 562bps Q-o-Q to 16.9% in March 2016 on lower absolute NPLs (-24% Q-o-Q). NPL coverage increased to 135% in 1Q16, up from 106% in 4Q15. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   Faisal Islamic Bank of Egypt: USD1.46 as of 22 May 2016, Rating: Buy, FV: USD1.77 per share, MCap: USD336 million, FAITA EY / FAITA.CA