Results Review : Commercial International Bank 1Q20

Provision formation gobbles 1Q20 earnings; negative impact on core banking income yet to materialize


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


Abanob Magdy, CFA
Associate VP | Financials
Tel: +2 02 2461 6390 

Abdelrahman Farid
Associate | Financials
Tel: +2 02 2461 6300 ext: 7110 

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