Bottom line down on surge in COR and hefty tax margin; solid NII remains a key positive
Commercial International Bank’s (CIB) 1Q20 net profit decreased 9.2% y-o-y and 26.5% q-o-q to EGP2.4bn, mainly on higher provision formation and higher tax margin. Compared to 1Q19, the bank’s core banking income increased 21.4% to EGP6.7bn, mainly on rate driven NII growth, thanks to c80bps higher NIMs to 7.2%. The bank’s impairment of credit losses surged c138% to EGP1.2bn on higher provision formation on performing loans (stage 2), accounting for higher PDs and LGDs. Moreover, other provision charges hiked EGP0.5bn in addition to the 15.5% increase in OPEX that is mainly attributable to donations. On a sequential basis, core banking income came in almost flat on steady NIMs and a stable financial position. Meanwhile, impairment of credit losses increased c443% q-o-q, bringing the bank’s COR up c355bps to c431bps. The bank’s tax margin showed a hefty increase to c36%, mainly due to the provision formation while materializing the impact of tax amendments on LC sovereign securities.
Subdued lending activity amid macro challenges; asset quality intact
CIB reported a financial position contraction of 1.3% y-t-d to EGP381.6bn in 1Q20. Balance sheet contraction came on the back of a c11% drop in equity levels, which was primarily driven by a net unrealized loss on financial assets of EGP4.9bn and dividends paid of EGP3.4bn. The bank’s total deposits inched up 1.8% y-t-d to reach EGP309.97bn, mainly on corporate deposits rising 3.4% y-t-d, while retail deposits came in almost flat (+0.8% y-t-d). Meanwhile, CIB lending activity was subdued, with gross loans recording an aggregate 3.3% y-t-d decline to EGP115.4bn as of March 2020. The y-t-d drop in gross loans came mainly on the back of a 4.0% contraction in its corporate loan book, while the bank’s retail loans grew 4.2%% y-t-d to EGP28.4bn, which slightly overshadowed the decline in corporate loans. That said, the bank’s LDR declined to 41.4% in 1Q20 from 43.2% in 4Q19. CIB’s asset quality metrics remained stable. Its NPL ratio stood at 4.0%, almost flat q-o-q, while the absolute NPL figure dropped c2% q-o-q to EGP5.1bn. Provision coverage jumped to c249% in March 2020 from c225% in December 2019. CIB’s capitalization remains solid, with a capital adequacy ratio standing at 26.35%.
Sovereign exposure to hold asset duration and maintain NIMs; COF profile remains a strong asset
The bank maintains steady NIMs (+c80bps y-o-y) on a c133bps y-o-y lower interest expense on deposits, while asset yield showed a c92bps y-o-y decline; higher asset duration, mainly in its sovereign portfolio (c66% of interest income), is a key factor. On a sequential basis, NIMs came in almost flat, despite a lower benchmark by average of 123bps, with c39bps lower interest expenses on deposits almost perfectly in line with the decrease in asset yield.
COR likely to normalize on ample coverage ratio
We do not expect another shock in COR throughout 2020e as the bank enjoys a healthy coverage ratio of c249% while only c40% of provisions are directed to NPLs, which remain stable at c4% of total loans. The bank’s ROAE showed a 9.8% y-o-y decline to 19.6% on lower financial leverage by 1.7x and a higher tax margin by 7.4%. Normalizing both factors, ROAE would stand at 25.6% with the remaining 3.9% mainly attributable to higher COR.
COMI EY, Price: EGP61.5, FV: EGP80.5, Hold
-Ends-
Abanob Magdy, CFA
Associate VP | Financials
Tel: +2 02 2461 6390
afouad@beltonefinancial.com
Abdelrahman Farid
Associate | Financials
Tel: +2 02 2461 6300 ext: 7110
atarek@beltonefinancial.com
To receive other reports, please contact: Research@beltonefinancial.com
© Press Release 2020
Disclaimer: The contents of this press release was provided from an external third party provider. This website is not responsible for, and does not control, such external content. This content is provided on an “as is” and “as available” basis and has not been edited in any way. Neither this website nor our affiliates guarantee the accuracy of or endorse the views or opinions expressed in this press release.
The press release is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither this website nor our affiliates shall be liable for any errors or inaccuracies in the content, or for any actions taken by you in reliance thereon. You expressly agree that your use of the information within this article is at your sole risk.
To the fullest extent permitted by applicable law, this website, its parent company, its subsidiaries, its affiliates and the respective shareholders, directors, officers, employees, agents, advertisers, content providers and licensors will not be liable (jointly or severally) to you for any direct, indirect, consequential, special, incidental, punitive or exemplary damages, including without limitation, lost profits, lost savings and lost revenues, whether in negligence, tort, contract or any other theory of liability, even if the parties have been advised of the possibility or could have foreseen any such damages.
