Egyptian - Banks 25% more upside left despite strong rally

Transcription

1 E g y p t i a n b a n k s F e b r u a r y Jaap Meijer, MBA, CFA jaap.meijer@arqaamcapital.com Anas Aboul Hosn anas.abouhosn@arqaamcapital.com Egyptian - Banks 25% more upside left despite strong rally Consensus still strongly underestimates banking sector revenues, with robust NII on strong translation gains and resilient NIMs, whilst non-nii driven by credit related fees as well as FX income (higher volumes with improved spreads), with QNBA (NII +14.5% q/q) and CIB s Q4 (+16.6% q/q) reinforcing our bullish stance. JAWs should be double-digits in FY 17e despite wage drift of 15-2, while bad debt charges are managed to cap EPS growth at c 3 y/y. Listed banks have very prudent with regards to FX loans ahead of the EGP devaluation. We see on average 24.6% upside, even though banking stocks rose 5+, but still underperformed the index by c.1, despite being the clearest beneficiary of the devaluation and reform agenda. We expect revenue growth of 28.1% in FY 16e and 30.4% in FY 17e, 20.1% above consensus, and operating earnings growth of %. We expect the banks to report 46.4%/52.2% asset/loan growth in FY 16e, with 34.3% support from the EGP devaluation. We update our forecasts based on an FX rate of 18x for YE 16 and 17x for YE 17e. Strong NII growth on stable NIMs and asset growth: Even though NIMs on USD assets are lower, we still expect NIMs to remain stable y/y in FY 17e, as banks benefit from the 300bps MPR rate hike with positive ALM gaps and strong endowment effects (equity/asset of 8.) and high share of non-interest bearing deposits (12.7% with the highest share for HDBK). Further, banks can also optimize their balance sheets (higher allocation to government securities, less cash). Non-NII trend (at just 21.4% of revenues FY 17e) is likely to surprise on the upside, with banks fully enjoying improved FX trading (increased volume, wider spreads), strong F&C (credit extension, fees for letters of credit), though capital gains in fixed income securities are unlikely at this juncture. Consensus is too concerned about capital. Capital generation before dividends and RWAs growth stands at 4.1% for the sector, the highest within the MENA, and by YE 18e banks should have fully clawed back the impact of the EGP devaluation, further topped up by B2 T2 issuance. Capital generation is enhanced thanks to a lift in revenues, though payouts should be kept at a minimum for FY 16e and FY 17e to rebuild capital buffers. The full reclassification of T-bonds from AFS to HTM mitigates MtM losses (QNBA avoided 380bps impact on CAR, though CIB has unrealized gains). Bad debt charges are rising to 18.3% of operating earnings in FY 17e, but the reduction from FY 17e to 10.1% by FY 20e should fuel EPS growth for the next few years. CoR peaked at 2.5% post the 2003 devaluation (EGP fell by 32.4%), absorbing 4 of operating earnings, before quickly normalizing, with RoE expanding by 800bps FY03-06A. 24.6% average upside left: Stocks have increased by +5 since the devaluation, but see 24.6% low risk average upside, with a strong FX embedded hedge with USD assets and liabilities almost clocking at 5, rendering the banks a safe bet for foreign investors. Every 5% re-rating of EGP has 2% negative effect on PPP sector earnings. Back in 2003, EGP strengthened only 1 over a 2 year time frame. Our TP of EGP 97.5 for CIB implies a P/E 18e of 11x, providing 27.6% upside. Smaller banks provide even more upside. Summary of recommendations Bloomberg code COMI EY Company name Commercial International Bank Price target EGP 97.5 Rating BUY Bloomberg code CIEB EY Company name Credit Agricole Egypt Price target EGP 50.2 Rating BUY Bloomberg code HDBK EY Company name Housing Development Bank Price target EGP 35.1 Rating BUY Bloomberg code QNBA EY Company name Qatar National Bank Alahly Price target EGP 56.0 Rating BUY Bloomberg code EGBE EY Company name Egypt Gulf Bank Price target EGP 8.8 Rating HOLD Bloomberg code HRHO EY Company name EFG Price target EGP 19.2 Rating BUY Bloomberg code SAUD EY Company name Al Baraka Bank Egypt Price target EGP 18.6 Rating BUY Bloomberg code FAIT EY Company name Faisal Islamic Bank of Egypt Price target EGP 25.2 Rating BUY Bloomberg code ADIB EY Company name Abu Dhabi Islamic Bank Egypt Price target EGP 7.1 Rating HOLD Bloomberg code UNBE EY Company name Union National Bank Egypt Price target EGP 6.2 Rating BUY Bloomberg code NBKE EY Company name NBK-Egypt Price target EGP 37.3 Rating BUY Bloomberg code CANA EY Company name Suez Canal Bank Price target EGP 6.1 Rating HOLD Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice.

2 Table of Contents Egyptian banks are extremely well positioned with some better than others... 3 Substantial drag on capital ratios due to higher RWAs, but capital generation should boost CAR overtime USD assets are now almost half of the banks balance sheet... 8 NIMs likely to stabilize/strengthen in FY 17e... 9 Bad debt charges to increase a reflection of strong operating earnings rather than underlying issues Capital generationflow FY 16A/e-17e Asset Quality evolution After a challenging FY 17e Egypt is ready for take off in FY 17e Company Pages Commercial International Bank Credit Agricole Egypt Housing Development Bank Qatar National Bank Alahly Faisal Islamic Bank of Egypt Abu Dhabi Islamic Bank Egypt Al Baraka Bank Egypt Egypt Gulf Bank NBK Egypt Suez Canal Bank Union National Bank Egypt Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 2

3 Egyptian banks are extremely well positioned with further differentiation to occur in the near future We have again increased our TPs and forecasts slightly. This chiefly reflects Higher asset/loan and deposit growth as we update FX from 18 by YE 16e and 17x by YE 17e. We forecast average asset/loan and deposit growth of 46.4%, 52.2%, 47.3% for FY16e and 22.2%, 23.2%, and 23.6% in FY17e, with 34.3% benefit from the devaluation in FY16e. FX assets should now comprise 34.5% of assets of the listed banks and 42.3% of the loan books by YE 16e. We increase non-nii (FX, F&C) even further to 21.4% of revenues with CIB having reported even 3 of total income in the months post devaluations. OpEx growth should be contained, with wage drift of 15-2 vs. 1 historically only, resulting in double-digit JAWs y/y in FY 17e. Partly offset by higher bad debt charges (on average CoR of 1.6% in FY16e vs. 1.3% in FY15A, with strong capacity to absorb significant charges also in FY17e with PPP/bad loan charges of 5x). Exhibit 1: in FY 17e Provisions as % PPP provisions likely to peak Exhibit 2: CoR FY 16e % 3.5% 16% 3. 14% 12% 2.5% % % 0.5% 6% HDBK CANA QNBA NBKE ADIB ABBK MART COMI SAUD CIEB EGBE FAIT Exhibit 3: Valuation Sheet Egypt Company AC Mkt. Cap. CCY Mkt Cap. ADTV Share Target Upside P/E (x) P/tNAV (x) RoATE(%) Pre-Prov ROE (%) Dividend yield (%) P/PPP (x) FCFPS yield (%) MCap/Loans EPS Growth tnav Growth MCap/Dep Rating USDm (m) (USDm) price price (%) 15A/e 16e 17e 15A/e 16e 17e 15A/e 16e 17e 15A/e 16e 17e 15A/e 16e 17e 15A/e 16e 17e 15A/e 16e 17e 15A/e 16e FY 16e FY 17e FY 16e FY 17e 15A/e 16e CAE BUY 646 EGP 12, % 15.4% 15.9% CIB BUY 4,743 EGP 88, (0.2) % 34.3% 17.3% 32.4% HDB BUY 182 EGP 3, % 52.1% 14.9% 20.5% QNBA BUY 1,581 EGP 29, (5.8) % 36.4% 14.3% 33.7% Al Baraka BUY 86 EGP 1, (0.4) % 11.8% 29.2% 25.3% FAIT BUY 416 EGP 7, (18.6) % 74.7% 10.3% EFG HOLD 809 EGP 15, (0.1) (0.5) % 579.4% 34.5% -4.8% SCB HOLD 68 EGP 1, (28.1) nm nm nm (51.2) UNB-E BUY 63 EGP 1, (1.1) (6.8) (48.2) % 40.4% 13.3% 16.5% NBK-E BUY 141 EGP 2, (12.0) % 23.2% 28.5% 4.3% Egypt banks 8, , (0.0) Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 3

4 Banks Exhibit 4: Summary of earnings revision TP (EGP) Revenues (EGP m) Operating Profit (EGP m) EPS (EGP) Bank Old New Change Old New Change Old New Change Old New Change Old New Change Old New Change Old New ChangeOld New Change Old New Change Old New Change CIEB % 3,563 3,683 3% 4,094 4,225 3% 4,657 4,799 3% 2,523 2,643 5% 2,899 3,031 5% 3,320 3,462 4% % % % COMI ,806 16,833 22,697 22,568-1%29,01628,918 13,04113,083 18,27618,247 23,88723, % % % HDB % 3,244 3,217-1% 3,704 3,688 4,243 4,225 1,968 1,940-1% 2,235 2,220-1% 2,558 2,540-1% % % % QNBA ,000 13,473 4% 15,810 16,415 4% 18,628 19,390 4% 9,604 10,078 5% 11,857 12,462 5% 14,054 14,816 5% % % % EGBE * % 1,971 2,040 3% 2,293 2,366 3% 2,556 2,633 3% 1,236 1,229-1% 1,474 1,465-1% 1,617 1,601-1% % % SAUD % 1,515 1,567 3% 1,838 1,899 3% 2,063 3,132 52% 989 1,041 5% 1,232 1,293 5% 1,362 1,431 5% % % % FAIT % 2,914 3,228 11% 3,368 3,743 11% 3,793 4,230 12% 1,895 2,293 21% 2,211 2,682 21% 2,497 3,042 22% % % % ADIB-E % 2,516 2,624 4% 2,964 3,105 5% 3,344 3,541 6% 1,382 1,490 8% 1,672 1,812 8% 1,889 2, % % CANA % 1,107 1,296 17% 1,191 1,397 17% 1,325 1,555 17% % nm nm nm UNB-E % 1,085 1,092 1% 1,375 1,384 1% 1,731 1,743 1% % % 1,222 1,234 1% % % % NBK-E ,562 2,562 3,077 3,077 3,593 3,593 1,885 1,885 2,283 2,283 2,662 2, Source: Bloomberg, Arqaam Capital Research Note: * TP in USD Banks Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 4

5 Substantial drag on capital ratios due to higher RWAs, but capital generation should bring CAR back to 2015 levels by YE18 Consensus is overly concerned about the capital impact of the devaluation. On a reported basis CAR should be under severe pressure, as CAR excludes unappropriated earnings and the full impact of the devaluation of FX boosting RWAs. The negative impact on CAR should be fully clawed back by YE 2018 thanks to very robust capital generation (strongest FAIT followed by ADIB) and potential B2 T2 issues, like CIB. Impact of 4. on CAR after unappropriated earnings Granted, T1 capital generation in FY 16e should strongly lag behind the strong RWAs growth, fueled by the FX devaluation, as illustrated by Exhibit 5 below, as capital levels aren t aided by the devaluation, while RWAs are moving up sharply. Exhibit 5: Capital Generation 2017 impact of 2016 is clawed back at least partly 2017 Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio COMI 12.41% % 12.76% CIEB 13.65% % 7.34% 13.17% HDBK 14.93% % 7.02% 16.31% SAUD 11.51% -2.14% % 12.61% QNBA 12.17% -2.93% % 13.4 CANA 10.75% -0.06% % MART % % 11.7 NBKE 17.36% -6.46% % 14.92% ADIB 10.95% -1.25% % 13.61% FAIT 17.63% 3.89% -1.16% 3.43% 23.79% EGBE 6.94% -3.38% -0.07% 3.12% 6.61% ABBK % -0.59% 2.69% 18.22% Exhibit 6: Capital Generation 2016 RWA growth outweighs retained earnings 2016 Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio COMI 15.01% -7.26% % 12.41% CIEB 15.12% -4.86% % 13.65% HDBK 15.67% -4.48% -1.54% 5.28% 14.93% SAUD 11.01% -2.91% % 11.51% QNBA 16.43% -8.84% % 12.17% CANA 17.01% -6.26% % MART 23.05% % % 13.4 NBKE % % 17.36% ADIB 9.27% % 10.95% FAIT 16.43% % EGBE 10.15% -6.63% -0.06% 3.49% 6.94% ABBK 13.92% 3.32% -0.62% 2.27% 18.9 Reported CAR should be even under more pressure as Egyptian banks are not allowed to include appropriated earnings in their CARs, which underestimates CAR by up to 400bps (earnings dividends summed up in Exhibit 4 and 5). CAR should be back at YE 15 level by YE 18 with half of the impact clawed back in FY 17e However, we expect those capital ratios to be quickly rebuilt as illustrated in Exhibit 5/6. Roughly half of the impact should already be fully mitigated by YE 17 as per our workings and fully recovered by YE 18: The underlying capital generation is extremely robust at 4. per annum for the sector, with especially CIB, 4.75%, having a sturdy capital generation prior to dividends and RWA growth. Banks can moderate dividend payouts to accelerate the balance sheet repairs. Banks can raise capital (not our base scenario) and with P/tNAV now well above book the EPS dilution is mitigated. Banks are allowed to reclassify all T-bonds to HtM from AFS, avoiding U/L losses. Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 5

6 Dividend payout February Exhibit 7: Capital generation is strongest for CIB on low pay-out and high RoE - CIB FY 17e Exhibit 8: RoE CIEB and COMI leading the pack 2 different animals with COMI pursuing aggressive growth FAIT% HDBK COMI EGBE CIEB NBKE ADIB CANA QNBA MART SAUD RoE 45% 4 35% 3 25% 2 15% 1 5% 42% 38% 34% 32% 3 27% 25% 24% 16% 15% 14% CIEB ADIB COMI EGBE QNBA NBKE HDBK SAUD FAIT MART ABBK CANA Source: Company Data, Arqaam Capital Researc In the chart below we highlight the capital generation before dividend and RWAs growth after Zakat and director remuneration, and the impact of RWAs growth and dividend handouts for both FY 16e and FY 17e. CIB has the strongest capital generation in the sector (480bps of annual additional capital for FY 17e (before dividends and RWAs growth) thanks to the sector highest RoE and RoRWA. Banks are allowed to reclassify from AFS to HTM. FY 16A revealed to our surprise unrealized gains on those investments. Exhibit 9: Difference between Fair value and book value of HTM investments as % of RWAs 2.5% % % % -1. Exhibit 10: Non-Interest Bearing Liabilities as % of total -1.5% COMI CIEB NBKE EGBE QNBA MART SAUD HDBK CANA CIEB EGBE QNBA SAUD COMI MART FAIT ABBK ADIB NBKE Banks should look at increasing net USD position possibly through a CB facility, however that will go hand in hand with lower NIMs due to the opportunity costs (could reduce NIMs by on average 50bps). With FX possibly normalizing, it would be the wrong time to hedge the FX RWAs, in our view. Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 6

7 Exhibit 11: There are significant opportunity costs if banks were to hedge the RWAs in FX Egypt interbank 3M Libor 3M spread FX assets YE 16e Equity/assets INTEREST ASSETS/ASSETS Impact NIM Impact RoE COMI % 14.06% 40.05% % % -5.63% CIEB % 14.06% 37.87% % -5.32% HDBK % 14.06% 0.42% 11.2% 90.6% % -0.06% SAUD % 14.06% 27.93% 4.7% 103.6% % -3.93% QNBA % 14.06% % % -3.73% CANA % 14.06% 43.87% 5.4% 99.8% % -6.17% MART % 14.06% % 113.3% % -6.43% NBKE % 14.06% 43.37% 6.2% 107.9% ADIB % 14.06% 31.21% 4.8% 99.6% % FAIT % 14.06% 38.33% % % -5.39% EGBE % 14.06% 40.44% 4.7% 103.1% % ABBK % 14.06% 52.84% 15.3% 106.8% % -7.43% Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 7

8 USD assets are now almost half the banks balance sheets FX assets have increased to 34.8% of total assets, and have risen to 42.3% of loan book and 31.4% of deposits We don t expect credit demand in FX to diminish given the lower yield on those loans and potential for EGP to strengthen in the next few years, while we expect deposit holders to want to shift to EGP. Banks have the potential to optimize the funding costs as a result (reduced rates on USD funding going forward). Exhibit 12: FX as % of Assets Exhibit 13: FX as % of loans ABBK MART CANA NBKE EGBE COMI FAIT CIEB ADIB SAUD QNBA HDBK ABBK CANA NBKE QNBA EGBE COMI FAIT CIEB ADIB MART SAUD HDBK Source: Company Data, Arqaam Capital Researc Exhibit 14: FX as % of Deposits Exhibit 15: FX as % of Liabilities % 45% % 35% % 25% % 15% 1 1 5% 5% MART EGBE CIEB COMI ABBK CANA FAIT NBKE SAUD QNBA ADIB HDBK ABBK MART CANA NBKE EGBE CIEB COMI FAIT SAUD ADIB QNBA HDBK Source: Company Data, Arqaam Capital Researc Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 8

9 NIMs likely to stabilize/strengthen in FY 17e Higher FX balances may put pressure on average NIM with yields well below average on FX AIEAs. The positive endowment effect (equity/assets) and the high share of non-interest bearing liabilities (on average 12.7%) should nevertheless boost NIMs with risks to upside, with respect to short-term interest rates. Coupled with substantially higher balance sheet totals (46.3% growth in FY16e and 22.2% in FY17e), NII evolution should be very strong (36. FY17e vs. 33.4% FY16e) as higher rates automatically reset NIMs. NIMs of the banks should be at least stable on y/y basis despite a higher share of USD lending, with lower NIMs on average. We assume NIMs of 2% only on FX assets and corresponding liabilities vs. 4.27% on average for the entire book. The increase of FX assets from 19.9% to 35.7% on average from FY 16e to FY 17e should have a negative impact of -15.9pts on NIMs. We expect strong offset by repricing assets to the 300bps rate hike with interbank having increased even 350bps since the devaluation. We expect a NIM uplift of at least 158bps from the higher interest rate environment, helped by the endowment effect (3% effect on RoE) as well as a high share of non-interest bearing depsoits (6.). From the 12 month ALM gaps we calculate 180bps, 67bps, 93bps and 86bps uplift for HDB, CAE, QNBA and CIB respectively. Not all the banks benefit, though, hit by either already long dated sovereign bonds (with hindsight a poor investment decision with rates having picked up), or due to long-term deposist. Over time, the endowment effect should raise RoE as all AIEA and IBL reset (exhibit 10/11), with banks having more non interest bearing deposits or a higher equity/assets ratios benefitting more. Exhibit 16: NIM Evolution Table - NIMs are unlikley to contract depsite higher FX balances AVG NIM 2016 AVG NIM 2017 Change FX uplift ALM asset mix/repricing Assets - liabilities AEIA % of assets repricing 12M % of liabilities repricing <12M COMI EY 4.72% 4.77% 0.05% -0.46% 0.86% -0.36% 61, , % 46.7% CIEB EY 5.69% 6.02% 0.33% -0.66% 0.67% 0.31% 8,299 37, % 55.4% HDBK EY 6.69% % -0.01% % 14,775 24, % SAUD EY % -0.61% -0.19% % -7,787 33, % 34.1% QNBA EY 4.58% 4.98% % 0.93% -0.26% 48, , % 60.6% CANA EY 2.85% 2.91% 0.06% -0.15% 0.16% 0.06% 1,437 26, % 41.2% MART EY 3.38% 2.76% -0.62% % 0.5-4,867 20, % 36.1% NBKE EY 3.97% 3.71% -0.26% -0.37% -0.32% 0.44% -4,660 43, % 15.3% ADIB EY 5.39% 5.63% 0.25% -0.59% 0.48% 0.35% , % 23.6% FAIT EY 3.31% 3.53% 0.22% % 0.29% 2,727 58, % 3.1% EGBE EY 3.61% 3.38% -0.23% -0.25% -0.15% 0.17% -1,673 32, % 54. ABBK EY 3.46% 3.75% 0.29% -0.26% 0.79% -0.24% 3,014 11, % Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 9

10 Exhibit 17: 1) NIM and RoE impact 12M ALM gap (Scenario Exhibit 18: equity only) NIM and RoE impact endowment effect (on % % % -5% % % 1. (50) % (100) HDB QNBA CIB ABBK CAE ADIB SCB FAIT EGBE NBK-E Al UNB-E Baraka -15% 0 HDB FAIT QNBA CAE ABBK UNB-E CIB NBK-E ADIB SCB EGBE Al Baraka 0. Exhibit 19: NIM and RoE impact full endowment (on equity and non interest bearing liabilities) Exhibit 20: arrear) ALM gap as % of assets (categorized per s ADIB CAE NBK-E HDB SCB ABBK QNBA CIB UNB-E Al FAIT Baraka EGBE HDBK CAE QNBA CIB SCB ADIB FAIT ABBK EGBE Baraka NBK-Egypt UNB-Egypt <1m 1m-3 m 3m -12m 1-5 years over 5 years Non-interest bearing Exhibit 21: Net Loans as % of Total Assets (average 34%) Exhibit 22: Interest Income contribution breakdown Q % 4 35% 3 25% 2 15% 1 5% 46% 44% 45% 44% 44% 4 41% 42% 39% 35% 34% 37% 32% 3 31% 32% 28% 26% 25% 22% 9% 8% CANA MART FAIT HDBK CIEB COMI EGBE QNBA SAUD NBKE ADIB 2015 Q % 1% 12% 12% 9% 12% 1 37% % 52% 12% 62% 22% 13% 4% 3% 32% 24% 25% 8% 8% 18% 26% 89% 95% 71% 53% 49% 35% 39% 38% 42% 41% 25% 11% 2% COMI CIEB HDBK SAUD QNBA CANA MART NBKE ADIB FAIT EGBE To Customers Treasury Bills To Banks Reverse repos Investments in HTM and AFS debt instruments Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 10

11 EGP bn Percentage (%) February Exhibit 23: Interest Income contribution breakdown FY 15 Exhibit 24: T-bills + bonds as % of total assets % 1% 12% 9% 12% 1 18% 33% 51% 62% 26% 7% 28% 62% 19% 52% 44% 49% 41% 35% 25% 39% 34% 2% 3% 1% 7% 14% 35% 28% 3 41% 11% 51% 8% 19% 27% 83% 68% 42% 57% % 41% 33% 36% 48% 51% 54% 62% 38% 61% 38% 36% COMI CIEB HDBK SAUD QNBA CANA MART NBKE ADIB FAIT EGBE ABBK 0 CIB QNBA CAE HDBK Baraka SCB UNB-E NBK-E ADIB FAIT EGBE ABBK To Customers Treasury Bills To Banks Reverse repos Investments in HTM and AFS debt instruments Total Assets in EGPm T-Bills + bonds as % of Total Assets Exhibit 25: Total debt breakdown in AFS, HTM and T Bills as % of total assets 7 Exhibit 26: 5 CIEB still leads with 35.4% RoE % 8% 7% 9% 7% 29% 7% 2 13% 2 2 2% 48% 5% 18% 1% 45% 4 35% 3 25% 43% 38% 34% 32% 29% 27% 25% 24% % 14% 1% 29% 31% 33% 24% 25% 19% 21% 18% 3 12% 11% CIB QNBA CAE HDBK Baraka SCB UNB-E NBK-E ADIB FAIT EGBE ABBK T Bills AFS HTM 2 15% 1 5% 16% 15% 13% CIEB ADIB COMI EGBE QNBA NBKE HDBK SAUD FAIT MART ABBK CANA Source: Company Data, Arqaam Capital Researc Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 11

12 bps bps February No room for balance sheet optimization with T bills no longer offering yield pick-up vs. cash and interbank assets after taking into account 2 tax T-bill rates on average are 18.5%. After 2 tax this implied a net yield of 14.5%, below the interbank rates of 15.6%. As such there is no benefit to NIMs for banks that allocate their cash to T-bills momentarily. Exhibit 27: T-bills + AFS as % of Total Assets Exhibit 28: Cash + Interbank as % of Total Assets % 4 41% 32% 27% 27% 29% 62% 51% 45% 46% 35% 33% 29% 61% 59% 38% 37% 32% 31% 35% 3 25% 2 15% 31% 26% 26% 25% 22% 18% 17% 17% 29% 25% 19% 19% 13% 12% 15% 14% % 19% 16% 19% 1 9% 9% 8% 1 5% 4% 2% 2% CIB QNBA CAE HDBK Baraka SCB UNB-E NBK-E ADIB FAIT EGBE ABBK COMI CIEB HDBK SAUD QNBA CANA MART NBKE ADIB FAIT EGBE ABBK 2015 Q3 16 Average 38% FY 15 Q3 16 Average 15% On the other hand, balance sheets of QNBA, MART, NBKE and ADIBE are already fully deployed, and are unlikely to benefit from any balance sheet optimization exercise (Exhibit 6). Exhibit 29: NIM effect moving to sector average Exhibit 30: NIM effect moving to balance sheet FY 15A QNBA ADIB COMI SAUD MART FAIT NBKE ABBK CIEB CANA HDBK EGBE -250 ADIB EGBE ABBK FAIT QNBA SAUD COMI NBKE MART HDBK CIEB CANA Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 12

13 Yields Debt/Equity (x) EGP m Percentage (%) February Bad debt charges increase due to strong operating earnings rather than underlying issues Exhibit 31: We have increased our bad loan charges to 1.7% of loans in FY 16e and 1.9% in FY 17e, absorbing 17.3% of operating earnings in FY 16e and 18.3% in FY17e, still leaving the banks with a very comfortable bad debt coverage ratio of well over 5x. Operating earnings growth in FY 17e should allow for even more bad debt charges in FY 17e (43.7% y/y). However, we expect political pressure on potential restructuring loans on (non)- commercial basis. Gearing listed Egyptian corporates (non- FIG)) We are not too concerned about the extent of FX lending, as FX loans were adjusted for the EGP devaluation, suggesting that the scarcity of USD did not lead to a lot of FX borrowing. We do expect banks to provision for the increase in past due loans, build general reserves for the implementation of IFSR 9 (EBA expected 50-75bps impact on CAR and 2 increase in CoR). Gearing of the Egyptian corporate sector has increased to 59.5% in FY 16e from 56.1% YE 15A. Exhibit 32: Banks shied away from FX loans pre dev % 47.5% 52.4% 59.1% 62.2% 56.1% 59.5% 30,000 25,000 20, % 15,000 10, , COMI QNBA NBKE CANA EGBE ADIB CIEB SAUD MART FAIT HDBK FX Loans Underlying growth FX % 9M -4 Exhibit 33: Suez Canal Bank highest NPLs at 52.9% followed by FAIT (small base effect) % For the Period of: FY17e Exhibit 34: COMI yields on AIEA lead at 12.4% % 12.4% 11.9% % 11.3% 11.2% 11.1% 10.5% 10.4% 9.8% % 9.3% % % 8% 6% 6% 5% 5% 4% 3% 3% 0. COMI QNBA ADIB MART HDBK CIEB SAUD NBKE ABBK EGBE FAIT CANA CANA FAIT NBKE HDBK ADIB MART SAUD EGBE COMI ABBK QNBA CIEB Source: Company Data, Arqaam Capital Researc Yields CoF Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 13

14 Capital generation flow FY 16A/E-17e Exhibit 35: COMI Capital Generation 2017e Exhibit 36: COMI Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Exhibit 37: CIEB Capital Generation 2017e Exhibit 38: CIEB Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Exhibit 39: HDBK Capital Generation 2017e Exhibit 40: HDBK Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 14

15 Exhibit 41: 14. SAUD Capital Generation 2017e Exhibit 42: SAUD Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Exhibit 43: QNBA Capital Generation 2017e Exhibit 44: QNBA Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Exhibit 45: 10.8% 10.8% 10.7% 10.7% 10.7% 10.7% 10.7% 10.7% 10.7% 10.7% CANA Capital Generation 2017e Exhibit 46: CANA Capital Generation % Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 15

16 Exhibit 47: MART Capital Generation 2017e Exhibit 48: MART Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Exhibit 49: NBKE Capital Generation 2017e Exhibit 50: NBKE Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Exhibit 51: ADIB Capital Generation 2017e Exhibit 52: ADIB Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 16

17 Exhibit 53: FAIT Capital Generation 2017e Exhibit 54: FAIT Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Exhibit 55: 8. EGBE Capital Generation 2017e Exhibit 56: ABBK Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Exhibit 57: ABBK Capital Generation 2017e Exhibit 58: ABBK Capital Generation Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio 0. Tier 1 Ratio RWAs growth Dividends Capital generation Tier 1 Ratio Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 17

18 EGP EGP EGP EGP EGP February Asset Quality evolution Exhibit 59: NPL formation Credit Agricole Egypt Exhibit 60: COMI has best C/I ratio in our coverage space 0.8% 0.6% 0.4% 0.2% % -0.4% 5 45% 4 35% 3 25% 2 15% 43% % 35% 34% For the Period of: FY17e 29% 29% 28% 26% 26% 22% -0.6% 1-0.8% Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q % ADIB EGBE HDBK CANA MART SAUD FAIT ABBK CIEB NBKE QNBA COMI Adjusted for write-offs Source: Company Data, Arqaam Capital Researc NPL formation C/I Average 32% Exhibit 61: NPL formation CIB Exhibit 62: NPL formation HDBK % % % % % % Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q % % % % Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q Adjusted for write-offs NPL formation Adjusted for write-offs NPL formation Exhibit 63: NPL formation Qatar National Bank Al-Ahly Exhibit 64: NPL formation Al Baraka Bank 0.4% % 1.5% % -0.4% -0.6% % % Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q % Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q Adjusted for write-offs NPL formation Adjusted for write-offs NPL formation Source: Company Data, Arqaam Capital Researc Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 18

19 EGP EGP EGP EGP EGP EGP February Exhibit 65: NPL formation Suez Canal Bank Exhibit 66: NPL formation Union National Bank % % % % % % % -3. Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q % Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q Adjusted for write-offs NPL formation Adjusted for write-offs NPL formation Exhibit 67: NPL formation NBK - Egypt Exhibit 68: NPL formation Egyptian Gulf bank % % % % Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q Adjusted for write-offs NPL formation Exhibit 69: NPL formation Faisal Islamic bank Exhibit 70: NPL formation Abu Dhabi Islamic Bank Egypt % 2.5% % % 1.5% % % -3.5% Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q Adjusted for write-offs NPL formation Adjusted for write-offs NPL formation Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 19

20 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 February After a challenging FY 17e Egypt is ready for take off in FY 18e Real exchange rate is now more attractive than However, we can still draw lessons from the devaluation of The EGP was able to claw back some of its lost value, c.1 over 2 year time frame post the devaluation, 2 adjusted for inflation. Inflation spiked to 15-18% in 2003/05 vs % in 2016/17e with the policy rate now at 15.25% vs in 2003/05, suggesting negative real interest rates We expect the recovery to be driven by exports (fertilizer, cement, manufacturing) and CapEx (FY 18e onwards). Exhibit 71: Egypt GDP vs. M2 growth Exhibit 72: Egypt GDP vs. EGX30 23% 21% 19% 17% 15% 13% 11% 9% 7% 5% GDP M2 Source: Thomson Reuters Datastream, Arqaam Capital Research 14,000 12,000 10,000 8,000 6,000 4,000 2, EGX30 GDP (RHS) Source: Thomson Reuters Datasteram, Arqaam Capital Research 23% 21% 19% 17% 15% 13% 11% 9% 7% 5% Exhibit 73: 21 EGPUSD Exhibit 74: 2003 levels Egypt real exchange rate now overshooting Overshooting EGP Source: Thomson Reuters Datastream, Arqaam Capital Research Source: IMF, Arqaam Capital Research Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 20

21 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Jan 03 Aug 03 Mar 04 Oct 04 May 05 Dec 05 Jul 06 Feb 07 Sep 07 Apr 08 Nov 08 Jun 09 Jan 10 Aug 10 Mar 11 Oct 11 May 12 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Dec 12 Jul 13 Feb 14 Sep 14 Apr 15 Nov 15 Jun 16 USDm February Exhibit 75: CPI vs. policy rate Exhibit 76: International reserves 25% 2 15% 1 5% 16% 15% 14% 13% 12% 11% 1 9% 8% 40,000 35,000 30,000 25,000 20,000 15,000 10,000 CPI Discount Rate Source: Thomson Reuters Datastream, Arqaam Capital Research Source: Thomson Reuters Datastream, Arqaam Capital Research Exhibit 77: Egypt loan and deposit growth (y/y) Exhibit 78: Investments as % of GDP: ready for takeoff 35% % 25% 26% 2 24% 15% 22% 1 2 5% 18% 16% 14% 12% Total loan growth y/y Total deposit growth Source: Thomson Reuters Datastream, Arqaam Capital Research Source: Thomson Reuters Datastream, Arqaam Capital Research Exhibit 79: Net debt/gdp to peak in FY 17e Exhibit 80: Population evolution % % % % 0 5 Population Aged 65+ Population Aged Population Aged 0-14 Source: Thomson Reuters Datastream, Arqaam Capital Research Source: Thomson Reuters Datastream, Arqaam Capital Research Exhibit 81: Real GDP output gap Exhibit 82: Public vs. private sector loan growth Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 21

22 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Nov 10 May 11 Nov 11 May 12 Nov 12 May 13 Nov 13 May 14 Nov 14 May 15 Nov 15 May 16 Nov 16 Nov 10 Feb 11 May 11 Aug 11 Nov 11 Feb 12 May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13 Nov 13 Feb 14 May 14 Aug 14 Nov 14 Feb 15 May 15 Aug 15 Nov 15 Feb 16 May 16 Aug 16 Nov 16 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Jul 12 Nov 12 Mar 13 Jul 13 Nov 13 Mar 14 Jul 14 Nov 14 Mar 15 Jul 15 Nov 15 Mar 16 Jul 16 Nov Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 EGPbn February ,250 35% 2, ,050 1,950 1,850 1,750 1,650 1, % 25% 2 15% 1 5% 1,450 1,350 Real GDP current forecasts Real GDP growth (with trend) Total loan growth y/y Total deposit growth Source: Thomson Reuters Datastream, Arqaam Capital Research Source: Thomson Reuters Datastream, Arqaam Capital Research Exhibit 83: EGX30 Forward P/E Exhibit 84: EGX30 P/B 20x 2.5x 18x 2.3x 16x 14x 12x 10x 8x 2.1x 1.9x 1.7x 1.5x 1.3x 1.1x 6x 0.9x 4x 0.7x Forward P/E Average P/B Average Source: Bloomberg, Arqaam Capital Research Source: Bloomberg, Arqaam Capital Research Exhibit 85: EGX30 Net Margin Exhibit 86: EGX30 Dividend Yield 2 8% 15% 7% 1 5% -5% 6% 5% 4% 3% 2% -1 1% -15% Net Margin Average Div. yield Average Source: Bloomberg, Arqaam Capital Research Source: Bloomberg, Arqaam Capital Research Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 22

23 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Jun 09 Oct 09 Feb 10 Jun 10 Oct 10 Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Oct 12 Feb 13 Jun 13 Oct 13 Feb 14 Jun 14 Oct 14 Feb 15 Jun 15 Oct 15 Feb 16 Jun 16 Oct 16 Mar 09 Jul 09 Nov 09 Mar 10 Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Jul 12 Nov 12 Mar 13 Jul 13 Nov 13 Mar 14 Jul 14 Nov 14 Mar 15 Jul 15 Nov 15 Mar 16 Jul 16 Nov 16 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 February Exhibit 87: EGX70 Forward P/E Exhibit 88: EGX70 P/B 15x 3.5x 14x 13x 3.0x 12x 11x 2.5x 10x 2.0x 9x 8x 1.5x 7x 6x 1.0x 5x 0.5x Forward P/E Average P/B Average Source: Bloomberg, Arqaam Capital Research Source: Bloomberg, Arqaam Capital Research Exhibit 89: EGX70 Net Margin Exhibit 90: EGX70 Dividend Yield 14% 12% 12% 1 1 8% 6% 4% 8% 6% 4% 2% 2% Net Margin Average Div. yield Average Source: Bloomberg, Arqaam Capital Research Source: Bloomberg, Arqaam Capital Research Exhibit 91: EGX30 LTM EPS Exhibit 92: EGX30 Consensus EPS LTM EPS Average BEST EPS Average Source: Bloomberg, Arqaam Capital Research Source: Bloomberg, Arqaam Capital Research Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 23

24 Company Pages C o m p a n y U p d a t e F e b r u a r y Jaap Meijer, MBA, CFA jaap.meijer@arqaamcapital.com Anas Aboul Hosn anas.aboulhosn@arqaamcapital.com Commercial International Bank Re-leveraging B/S should boost NIM We are 11.% above consensus for revenues for CIB for FY 17e and FY 18e. We expect NIMs to stabilize even though FX stands at 36.5%, due to 86bps benefit from higher interest rates, though current T-bill rates no longer provide an opportunity to boost NIMs. Capital generation (pre div and RWA uplift) stands at 5.57% in FY16 and 4.75% in FY17e, with T2 issue likely to boost CAR even further. We have recently increased our TP from EGP 86.2 to EGP 97.5 for Africa s most profitable/fastest growing bank at an implied P/tNAV 18e of 3.2x and P/E18e of 11x. We are well above consensus for FY 17-20e with operating profit CAGR of 31.2% well ahead of consensus. This is on the back of a huge surge in total assets in FY 16e, boosting NII (16.6% q/q in Q4 alone). Even though NIMs of USD assets should be lower, strong management of deposits, higher asset yields, and sticky funding costs (higher share of retail deposits) should more than offset this (Exhibit 15). CAGR of 27% with RoE expanding to 35%+: Balance sheet growth should continue in FY 17e at 27. vs. 5yr CAGR of 22.2% and loan growth at +3 with 5 year CAGR of 24.3%. 2016e NII/AIEA stand at 4.8%, non-nii at 1. of assets, with C/I of 22.3% and CoR/RWA at 1.13%. This translates into an average RoA, RoRWA and RoE of 2.7%, 3.7% and 33.3% (vs. target of 35%) for FY 17e. Bad loan charges should increase from 112bps to 172 bps in FY 17e, we expect CoR to be one of the key drivers for earnings growth post FY 17e, surplus provisions equal to 3.3% of loans. Past dues > 90 days fell from 6. YE 15A to 5.25%, but impaired loans increased to 6.76% from 4. YE 15A (mostly FX loans). Coverage remained at 149% with overprovisioning standing at EGP 3.2bn, equal to 3.3% of loans. CAR should bounce back in FY 17e: Pay-out in FY 16 moderated to 1, but CAR to be quickly rebuilt on strong capital generation of 4.75% in FY 17e and T2 issue of USD m, boosting t2 capital by ppt in FY 17e. CIB is becoming the most profitable bank in Africa, with Kenyan banks (best in class KCB, Equity) being affected by lending and deposit caps and Nigerian banks (GTB best in class) facing a perfect storm (regulatory charges, high CRR). Our TP of EGP 97.5 implies a justifiable P/E 18e of 11.0x and P/PPP 18e of 6.1x, supported by EPS CAGR of 31% FY16-21e. BUY Banks / EGYPT Price Performance COMI EY 73 Dec/15 Mar/16 Jun/16 Sep/16 EGP 97.5 Bloomberg code COMI EY Market index EGX Price target (local) 97.5 Upside (%) 26.6 Market data 2/2/2017 Last closing price Week range Market cap (EGP m) 88,871 Market cap (USD m) 4,743 Average Daily Traded Value (EGP m) 87.5 Average Daily Traded Value (USD m) 4.7 Free float (%) 99% Year-end (local m) e 2018e Revenues 10,807 12,209 16,833 22,658 Pre-provisioning profit 8,144 9,090 13,083 18,247 EPS P/E (x) (mkt price) BVPS Tangible BVPS P/B (x) (mkt price) P/TBVPS (x) (mkt price) DPS Div. yield (%) EPPS RoAA (%) RoRWA (%) RoATE (%) RoEcC (%) RAROC (%) Net LtD ratio (%) Risk Weighted Assets (bn) Core Equity T1 ratio (%) Tier 1 capital ratio (%) Total capital ratio (%) NPL ratio (%) Coverage ratio (%) Number of shares 1,147 1,147 1,147 1,147 Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. EGX

25 Abacus 2 15% 1 5% Growth Arqaam Capital Fundamental Data Profitability % 8.01% 8.46% 8.45% 8% 6.06% 6.8 6% 4% 2% 1.76% 4.39% 1.13% 4.47% 1.17% 4.87% % 0.59% 3.55% % PPP/RWA Cost of risk/rwa RORWA NIM 5.4% 5.2% % % 5.05% 4.6% 4.4% 4.72% 4.77% 4.2% Net interest margin Credit Quality % % 7.1% % FY 17e FY 18e FY 19e FY 20e NPL Cov ratio (%) NPL as % of tot loans Capital Ratios 16.1% Core Tier 116.1% (Base III) 17.4% 17.7% CAR 18.2% 13.5% % 49% 28% 16% 26% 21% 27% 27% 21% 25% 15% Loan growth Deposit growth February Commercial International Bank Performance analysis Net Interest Margin (%) Asset yield (%) Cost of Funds (%) Risk Adjusted Margins (%) Cost / Income (%) Net Interest Income / total income (%) Fees & Commissions / operating income (%) Trading gains / operating income (%) RoATE (%) Pre-prov. RoATE (%) RoAA (%) Revenue / RWA (%) Costs / RWA (%) PPP / RWA (%) Cost of Risk / RWA (%) RoRWA (%) RoRWA (%) (adj. for gross-up of associates) Asset Quality Provisions charge / avg. gross loans (%) Past due not impaired / gross loans (%) NPL / gross loans (%) NPL coverage ratio (%) Provisions / avg. gross loans (%) Provisions charge / operating income (%) Funding and Liquidity Net Loans / Deposits (%) Cash and interbank / assets (%) Deposits / liabilities (%) Capital and leverage ratios Core Tier 1 ratio (Basel III) (%) Tier 1 ratio (%) Total capital ratio (%) Tangible equity / assets (%) RWA / assets (%) Growth Revenues (%) Cost (%) Pre-Provision Operating Profit Growth (%) Provisions (%) (46.9) (13.4) Net Profit (%) Assets (%) Loans (%) Deposits (%) Risk Weighted Assets (%) Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 25

26 Abacus Company profile Arqaam Capital Fundamental Data Established in 1975, Commercial International Bank is the largest privately-owned bank in Egypt with EGP 143.8bn in total assets and a 7%/8%/8% market share in assets / loans / deposits. CIB operates a network of 156 branches, employs over 5,403 people and provides commercial and investment banking services, with 84% in corporate lending. Key Drivers: - CoR was artificially high in FY 15A -36.5% of total assets and 53.6% of loans are in USD -3.9% of assets reprice in <1M, 18.3% 1-3M, and 70.2% 3-12M - The split between AFS and HTM is, 9.2% and 90.8% respectively - No net long position to USD Guidance : - Bottom line growth 25%+ - RoE17-20e 35% for standalone) Loan Breakdown by Sector 16% Retail Corporate Commercial International Bank Income statement (EGPm) Interest income 14,765 19,144 33,017 42,800 53,153 63,266 Interest expense 6,650 9,127 19,126 24,119 29,382 34,728 Net Interest Income 8,115 10,018 13,891 18,681 23,772 28,539 Fee income 1,632 1,548 2,275 3,231 4,201 5,041 Net investment income Other operating income 294 (7) Total operating income 10,807 12,209 16,833 22,658 28,918 34,716 Total operating expenses 2,663 3,119 3,750 4,411 5,117 5,884 Pre-provision operating profit 8,144 9,090 13,083 18,247 23,801 28,831 Net provisions 1, ,179 2,655 2,816 2,438 Other provisions / impairment Operating profit 6,454 7,987 10,904 15,592 20,985 26,393 Associates Pre-tax profit 6,482 7,990 10,978 15,684 21,097 26,527 Taxation 1,814 2,094 2,909 4,156 5,591 7,030 Net profit 4,730 6,023 8,069 11,528 15,506 19,497 Minorities Others ,323 1,780 2,238 Attributable net profit 4,195 5,325 7,127 10,182 13,695 17,221 Diluted EPS DPS BVPS Tangible BVPS % Loan Breakdown by Country Egypt 10 Management Chairman Hisham Ezz Al Arab CEO, Institutional Hussein Abaza CEO, Consumer Ahmed Maher CFO Ahmad Issa Major Shareholders % Fairax Financial Holdings 6.8 Abu Dhabi Investment Authority 5.0 Public 88.2 Consensus Total Coverage % Buy % Hold % Sell 23 61% 35% 4% Balance sheet (EGPm) Gross loans and advances 62,572 97, , , , ,377 Less: loan loss provisions 5,736 12,083 14,689 17,686 20,861 23,550 Net loans and advances 56,836 85, , , , ,827 Cash and central bank 9,849 10,522 22,662 27,382 28,407 30,996 Due from banks 21,002 58,011 20,387 25,280 30,588 36,706 Investment, net 82, , , , , ,002 Fixed assets, net 1,090 1,321 1,667 1,948 2,249 2,574 Other assets 8,237 11,823 9,758 8,610 8,274 11,664 Total assets 179, , , , , ,768 Customer deposits 155, , , , , ,568 Due to banks 1,601 3,009 4,811 13, ,092 Debt ,660 4,660 4,660 4,660 Other liabilities 5,951 11,126 8,207 10,040 12,010 14,262 Total liabilities 162, , , , , ,582 Total equity 16,583 21,508 27,435 35,637 45,341 57,186 Risk Weighted Assets (bn) Average Interest-Earning Assets 153, , , , , ,407 Average Interest-Bearing Liabilities 140, , , , , ,388 Common shareholders 15,696 20,875 26,800 34,969 44,638 56,442 Core Equity Tier 1 (Basel III) 14,350 18,633 24,561 32,762 42,466 54,311 Tier 1 capital 14,350 18,633 24,561 32,762 42,466 54,311 Jaap Meijer, MBA, CFA Anas Aboul Hosn jaap.meijer@arqaamcapital.com anas.aboulhosn@arqaamcapital.com Banks Copyright 2017, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 26