EFG-Hermes said in a report on Faisal Islamic Bank of Egypt that the bank’s 3Q2014 net income of EGP165 million rose 20% Y-o-Y, adding that the key driver of earnings growth was a decline in the tax rate Y-o-Y, with pre-tax earnings growth at a more lacklustre 4%.
“Nonetheless, net income in 3Q2014 came in 9% ahead of our forecast on stronger-than-expected net interest income. While core banking income and credit quality surprised positively, balance sheet growth was weak and below our expectations,” said EFG. The loan book was flat both Y-o-Y and Q-o-Q, and in both the retail and corporate segments, while deposits increased by 9% Y-o-Y and 1% Q-o-Q. Faisal has a very low share of loans to assets of 9% (down from 10% in September 2013), with most of the bank’s asset base being invested in T-Bills and T-Bonds. Prior to 2012, Faisal had a large share of its liquidity in interbank and cash assets. The net interest spread increased by 51bps Q-o-Q (flat Y-o-Y) to 369bps thanks to higher asset yields, and following the increase in yields on government securities during the third quarter. Funding costs increased only slightly during the quarter. The allocation of a higher share of assets to government securities since 2012 has led to a significant increase in Faisal’s ROE, which we estimate at 18.5% in 2014, up from 8.3% in 2011, according to the report issuer. Faisal has the highest NPL ratio in our Egypt banks coverage. It stood at 30.7% in September, down from 32.6% in June 2014. The majority of these NPLs are legacy. NPL coverage stood at 104%. Provisioning costs were linked primarily to investment provisions during 3Q2014.