QNB ALAHLY (QAA), 97.12%-owned by QNB, reported 2Q16 net income of EGP1,067mn, up 38% Y-o-Y and by 18% Q-o-Q. Y-o-Y and Q-o-Q, the key driver of higher earnings was a strong increase in net interest income, up 41% Y-o-Y and 13% Q-o-Q, thanks to volume growth and higher net interest spreads. On a Y-o-Y basis, earnings growth was also helped by a lower tax rate in 2Q16 compared to 2Q15. Total loans increased 7% Q-o-Q (up from 1% Q-o-Q in 2Q16), and 22% Y-o-Y, with similar growth in corporate loans and in retail loans. Customer deposits increased 24% Y-o-Y and 6% Q-o-Q. The structure of deposits was broadly unchanged Y-o-Y and Q-o-Q, with current accounts and savings deposits accounting for 29% of the total. The net interest spread improved further in 2Q16 to 4.32%, up from 3.96% in 1Q16. The increase in the spreads was driven by higher asset yields, on the back on higher policy rates since end of March 2016. Fee income growth was solid, bearing in mind weak trade finance volumes in Egypt: fees increased 6% Y-o-Y and 6% Q-o-Q.   The NPL ratio fell to 2.4% in June 2016 compared to 2.5% in March 2016, thanks to the increase in loans. There was just a slight increase in NPLs on an absolute basis of 5% Q-o-Q. NPL coverage increased to 172% in June 2016. Loan loss provisioning costs stood at 129bps, down from 167 bps. The level of provisioning costs is high, but reflects, in our view, the recent deterioration in Egypt’s macroeconomic backdrop. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)