Housing & Development Bank (HDB) released its full standalone financial statements for 3Q16. Net income of EGP160mn increased strongly 153% Y-o-Y (-9% Q-o-Q) from a low base in 3Q15 on a large one-off tax-related provision. The actual earnings in 3Q16 missed our forecast of EGP192mn by 17%. Revenue growth came in well above our estimate, with the net income miss driven by higher-than-expected provisioning costs and tax charges. 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.     Main positives: i) Expansion in net interest spread 161bps Y-o-Y and 193bps Q-o-Q on both higher asset yields and lower funding costs; ii) Very strong net interest income, fee income and investment and trading income; iii) Stable NPL ratio Q-o-Q; iv) Strong deposit growth at 8% Q-o-Q   Main negatives: i) Decline in the loan Q-o-Q; ii) Higher-than-expected provisioning costs; iii) Higher-than-expected tax charges   Our view: The key highlight of HDB’s results remains the very strong growth in net interest income, up 75% Y-o-Y and 51% Q-o-Q. Strong net interest income expansion for HDB has been driven since 2015 by free funds from NUCA’s land allocations (through a lottery system), for which HDB acts as an agent collecting down payments from customers who participate in these land allocations. The size of these land lotteries has increased since 2015 as the government has focused on improving Egyptians’ access to housing. HDB invests down payments (free funds) in government securities. Fee income was also strong, up 76%, also driven by NUCA’s land allocations. There was a decline in the loan book this quarter (-2% Q-o-Q) partly due to seasonality and also to a more cautious lending approach from HDB, but loan growth continues to be healthy on a Y-o-Y basis, up 18%. Deposit growth recovered to 8% Q-o-Q in 3Q16, compared to a drop of 7% Q-o-Q in 2Q16. Provisioning came as a negative surprise this quarter, with the cost of risk increasing to 970bps in 3Q16, from 204bps in 2Q16 and 129bps in 3Q15. However, with NPLs being flat Q-o-Q (NPL ratio was unchanged at 7.8% Q-o-Q), we believe HDB has been conservative in terms of provisioning given the strong topline growth. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)   Housing & Dev. Bank: EGP22.68 as of 16 November 2016, Rating: Buy, FV: EGP23.38 per share, MCap: USD187 million, HDBK EY / HDBK.CA