Faisal Islamic Bank reported a net income for 2Q16 of EGP152mn, down 20% Y-o-Y and 45% Q-o-Q. The actual earnings in 2Q16 missed our forecast of EGP199mn by 23%. Key drivers of the earnings miss are i) higher-than-expected tax charges with the effective tax rate surging to 55%, from 39% in 1Q16; and ii) lower-than-expected fee income, down 12% Y-o-Y and coming in 31% below our estimate; that together offset lower-than-expected provisioning costs.     Main positive: Lower-than-expected provisioning costs;   Main negatives: i) Decline in fee income and net interest income Y-o-Y; ii) Sluggish loan growth; iii) Higher-than-expected tax charges; iv) Worsening in credit quality Q-o-Q;   Our view on the results: A weak set of numbers in our view: i) The loan book was flat Q-o-Q and loan growth slow on a Y-o-Y basis at 2%, down from 2% Q-o-Q growth in 1Q16 (4% Y-o-Y), owing to a decline of 1% Q-o-Q in the retail book in 2Q16; ii) spreads shrunk 70bps Y-o-Y (and were broadly flat Q-o-Q) on higher funding costs and dented net interest income, which fell 7% Y-o-Y; iii) fee income was sluggish, down 12% Y-o-Y; iv) cost of risk increased to 68bps, from 21bps in 2Q15; v) tax charges surged with the effective tax rate up to 55%, from 48% in 2Q15; and vi) credit quality worsened Q-o-Q with the NPL ratio up 353bps to 20.4% on higher absolute NPLs (+22% Q-o-Q), after several quarters of improving credit quality. NPL coverage fell to 117% in 2Q16, from 135% in 1Q16. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   Faisal Islamic Bank of Egypt: EGP1.46 as of 15 August 2016, Rating: Buy, FV: EGP1.77 per share, MCap: USD336mn, FAITA EY / FAITA.CA