Housing & Development Bank (HDB) reported its standalone 1Q16 net income of EGP218mn, an increase of 23% Y-o-Y and 116% Q-o-Q. Actual stand-alone earnings in 1Q16 came in 34% ahead of our stand-alone forecast of EGP163mn. Key drivers of the earnings beat are higher-than-expected non-interest income and lower-than-expected operating costs that offset higher provisioning costs. Provisioning charges were driven by a one-off tax-related provision of EGP28mn in 1Q16.   Main positives: i) Loan growth strong at 9% Q-o-Q and 23% Y-o-Y; ii) Higher-than-expected fee income and non-interest income; iii) Lower-than-expected operating costs; iv) Decline in NPL ratio both Q-o-Q and Y-o-Y   Main negatives: i) Lower-than-expected net interest income; ii) Net interest spread compression Q-o-Q; iii) Higher-than-expected provisioning costs   HDB’s standalone financial statements include the commercial bank and real estate development on lands directly owned by HDB, but exclude HDB’s associate Hyde Park and other associates and subsidiaries of the bank which operate in the real estate and financial services sector. Consolidated numbers tend to be published much later than standalone financial statements.     Our view on the standalone results: A good set of results. Loan growth was strong at 9% Q-o-Q (23% Y-o-Y), with the bulk of the growth driven by EGP-denominated loans (most of HDB’s loan book is EGP-denominated). Deposit growth was also strong at 10% Q-o-Q. The net interest spread widened 43bps Y-o-Y on higher asset yields, but fell 21bps Q-o-Q, as asset yields declined from what we see an exceptionally high level in 4Q15. Net interest income and fee income were strong, up 50% and 14%, respectively, boosted by higher spreads, loan growth, and also, which is a very specific driver of NII for HDB, by free funding, which the bank gets on customers who participate in land auctions done by NUCA (government owned). This type of free funding increased Y-o-Y in March 2016. Total provisioning costs increased strongly Y-o-Y (+70% Y-o-Y), as HDB booked an additional tax-related provision of EGP38mn in 1Q16. However, loan loss provisions declined and cost of risk fell to 125bps (from 158bps in 1Q15). Credit quality improved in March 2016, with the NPL ratio falling to 7.0%, owing to volume growth, while absolute NPLs were broadly flat Q-o-Q. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   Housing & Dev. Bank: EGP17.04 as of 24 May 2016, Rating: Buy, FV: EGP28.47/share, MCap: USD243 mn, HDBK EY / HDBK.CA