QNB ALAHLI (97.2% owned by Qatar National Bank) has reported 2Q17 net income of EGP1,470mn, a strong increase of 38% Y-o-Y and 17% Q-o-Q. Key drivers of earnings growth were: i) revenues, up 24% Y-o-Y and 6% Q-o-Q on strong expansion in net interest income and fee income; and ii) provisioning costs, which declined Y-o-Y and Q-o-Q. Key highlights of the results:
 
        I.            Strong EGP loan growth: Total balance sheet growth on a Y-o-Y basis continues to be distorted by the devaluation of the EGP in Nov-16 and the consequent large appreciation of USD-denominated loans. Total loans increased 7% Q-o-Q. EGP loan growth momentum accelerated in 2Q17: EGP loans rose 14% Q-o-Q (43% Y-o-Y), compared to 9% Q-o-Q growth in 1Q17, driven mostly by the corporate segment. USD loans fell 5% Q-o-Q. USD loans also declined in 1Q17, partly as trade loans in USD booked before Nov-16 are being settled or rescheduled in EGP
 
      II.            Pick-up in EGP deposit growth: Deposit growth in EGP accelerated to 5% Q-o-Q (vs. 0.3% Q-o-Q in 1Q17), thanks to a pick-up in growth of corporate deposits. USD deposits fell 6% Q-o-Q. The ratio of demand deposits to total deposits was broadly unchanged, at 23%
 
    III.            Slight Q-o-Q improvement in the net interest spread: The net interest spread increased by 8 bps Q-o-Q to 3.60% in 2Q17, driven by stronger asset yields, which increased by 96 bps Q-o-Q, offsetting a 89bps Q-o-Q increase in funding costs. The improvement in spreads was driven, in our view, by the increase in rates by the Central Bank in May 2017. Net interest income increased 24% Y-o-Y and by 6% Q-o-Q
 
    IV.            Strong Y-o-Y growth in fees: Fee income remained very strong in 2Q17, up 30% Y-o-Y (broadly flat Q-o-Q), with the key driver being the better availability of USD 
 
      V.            Large decline in provisioning costs; stable credit quality: Provisioning costs declined Y-o-Y and Q-o-Q in 2Q17, after very conservative provisioning costs in 2Q16 and in 1Q17 (cost of risk down to 28bps in 2Q17 compared to 82bps in 1Q17 and 129bps in 2Q16). The NPL ratio was broadly stable Q-o-Q at 2.5%. NPL coverage was also broadly unchanged at 184% in 2Q17.

 
Qatar National Bank AlAhli: EGP42.02 as of 11 Jul. 2017, Non rated, MCap: USD1,743mn, QNBA EY/QNBA.CA