Housing & Development Bank (HDB) released its full standalone financial statements for 2Q16. Net income of EGP177mn increased 23% Y-o-Y (-19% Q-o-Q), beating our forecast of EGP148mn by 20%. The key driver of the earnings beat is higher-than-expected net interest income that more than offset lower-than-expected fee income and trading income, as well as higher-than-expected operating expenses and 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 stand-alone financial statements.     Main positives: i) Loan growth strong at 6% Q-o-Q and 25% Y-o-Y; ii) Very strong net interest income; iii) Decline in NPL ratio both Q-o-Q and Y-o-Y   Main negatives: i) Y-o-Y and Q-o-Q decline in fee income and in trading income; ii) Higher funding costs Q-o-Q; iii) Higher-than-expected provisioning costs and operating expenses; iv) Decline in deposits Q-o-Q   Our view on the standalone results: Loan growth continues to be strong, up 6% Q-o-Q (25% Y-o-Y) in 2Q16, following a surge of 9% Q-o-Q in 1Q16. Deposit growth was weak this quarter, down 7% Q-o-Q, driving the loan-to-deposit ratio up to 72% in 2Q16, from 63% in 1Q16. Net interest income growth was very strong again this quarter, up 69% Y-o-Y and 49% Q-o-Q, thanks to loan growth, but more importantly, thanks to a strong increase in 2Q16 in free funding from individuals taking part in land auctions done by NUCA. These continue to be a key driver of net interest income for the bank (as free funds can be invested in liquid interest earning assets) and has more than offset a strong increase in the cost of deposits Q-o-Q. Fee income fell 35% Y-o-Y, albeit from a high base last year. Strong net interest income and income from housing projects boosted revenue growth to 43% Y-o-Y. As negative surprises, we highlight the strong increase in operating expenses of 46% Y-o-Y (+36% Q-o-Q), as well as the increase in provisioning costs Y-o-Y, due to a higher cost of risk at 140bps in 2Q16, from 115bps in 2Q15, and also higher other provisions. The increase in provisioning costs is likely the result of allocating conservative provisioning costs due to the strong top-line reported by the bank in 2Q16. Credit quality continues to improve, with the NPL ratio down 13bps Q-o-Q to 6.8% in 2Q16; NPLs increased slightly by 4% Q-o-Q. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   Housing & Dev. Bank: EGP16.53 as of 16 August 2016, Rating: Buy, FV: EGP28.47 per share, MCap: USD235mn, HDBK EY / HDBK.CA