QNB ALAHLY (QAA), 97.12% owned by QNB, has today reported 3Q16 net income of EGP1,115mn, up by 24% Y-o-Y and by 4% Q-o-Q. There was a very strong increase in net interest income, up 44% Y-o-Y and 10% Q-o-Q, thanks to wider net interest margins. Higher net interest income has more than offset very weak fee income in 3Q16, down 30% Y-o-Y and 34% Q-o-Q.   Loan growth continues to be healthy: Loan growth has slowed in 3Q16, but remains healthy at 5% Q-o-Q (+21% Y-o-Y), compared to 7% Q-o-Q in 2Q16.  Corporate loan growth was strong at 4% Q-o-Q, although down from 7% Q-o-Q in 2Q16. There was a notable deceleration in retail loan growth to 2% Q-o-Q in 3Q16, compared to 7% growth in the previous quarter.   Net interest margin increases by 23bps Q-o-Q: The net interest margin improved further in 3Q16 to 5.15%, up from 4.92% in 2Q16. The increase was driven entirely by higher asset yields. This is the effect of the 100bps increase in rates by the CBE in mid-June 2016. Higher interest rates tend to impact positively NIMs for Egyptian banks due to their very liquid balance sheets and the short-term maturity of corporate loans.   Very weak fee income: Fee and commission income fell 30% Y-o-Y and 34% Q-o-Q. As trade finance constitutes the largest component of fee income for Egyptian banks, it is not surprising to see such poor growth in the current context of very tight FX liquidity in Egypt’s banking system.      Past due loans and NPLs both flat Q-o-Q: The NPL ratio was broadly flat Q-o-Q at 2.4% in Sept 2016, and past due loans, which account for 2% of total loans, were also flat Q-o-Q.  However, QNBAA continues to book conservative provisioning costs (cost of risk was 171bps in 3Q16), and NPL coverage has risen to 187% of NPLs. (Company, Elena Sanchez-Cabezudo, CFA, Rajae Aadel)   Qatar National Bank AlAhli: EGP33.09 as of 9 October 2016, N/R, MCap: USD2,404mn, QNBA EY / QNBA.CA