Faisal Islamic Bank reported a net income for 3Q16 of EGP466mn, a strong increase of 79% Y-o-Y and 206% Q-o-Q. The actual earnings in 3Q16 largely exceeded our forecast of EGP177mn. The key drivers of the earnings beat are i) a large provisioning reversal of EGP206mn booked in 3Q16 with loan loss reversals at EGP39mn and other provision reversals of EGP167mn (related to reversals of earlier provisions for associates and subsidiaries and impairment of assets available for sale); and ii) lower-than-expected tax charges with the effective tax rate falling to 30%, from 42% in 3Q15 and 55% in 2Q16.   Main positives: i) Large provisioning reversal; ii) Higher-than-expected net interest income; iii) Decline in operating expenses both Y-o-Y and Q-o-Q; iv) Lower-than-expected effective tax rate; v) Decline in the NPL ratio both Y-o-Y and Q-o-Q   Main negatives: i) Decline in fee income and non-interest income Y-o-Y; ii) Decline in the loan book Y-o-Y and Q-o-Q; iii) Lower-than-expected deposit growth   Our view on the results: The loan book declined 3% Q-o-Q and 5% Y-o-Y, and was flat Q-o-Q in 2Q16, due to lower corporate loans in 3Q16. It is worth noting that Faisal has a ratio of loans to assets of just 9%, with most of the bank’s assets deployed in government securities. Deposit growth was weak at just 0.9% Q-o-Q (6% Y-o-Y), down from 1.2% in 2Q16. The net interest spread shrunk 52bps Y-o-Y on higher cost of funding, but widened 46bps Q-o-Q on stronger asset yields. Lower spreads and weaker volumes Y-o-Y drove a decline in net interest income of 3% Y-o-Y; fee income fell 33% Y-o-Y, leading to a drop in revenues of 9% Y-o-Y. On the positive side: i) operating expenses fell 20% Y-o-Y driving an improvement in the costs-to-income ratio to 21% in 3Q16, down from 24% in 3Q15; ii) Faisal booked a large provision reversals in 3Q16 ; iii) the effective tax rate fell to 30% in 3Q16, from 42% in 3Q15 and 55% in 2Q16; and iv) credit quality improved with the NPL ratio down 55bps Q-o-Q and 237bps Y-o-Y to 19.9% on lower absolute NPLs (-5% Q-o-Q and -14% Y-o-Y). (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   Faisal Islamic Bank of Egypt: USD1.24 as of 15 November 2016, Rating: Buy, FV: USD1.77 per share, MCap: USD368mn, FAITA EY / FAITA.CA