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CIB: 1Q21 – Profits fail to grow sequentially as margins decline

  • Profits failed to grow sequentially as a result of a drop in margins, as high-yield bonds mature and rates normalize
  • Earnings supported by profits realized from sale of financial investments, lower provisions, and lower OPEX (-6% q/q).
  • Loans inched up by 1.5% q/q, 0.5% higher than the average of the past. Deposits expanded by 7.4%, pushing LDR ratio down

Earnings supported by sale of financial investments and lower provisions amid a drop in margins; LDR declines

CIB 1Q21 net profit recorded EGP2.87 billion (-1% q/q, -20% y/y) and only 1% higher than our estimates for the quarter of EGP2.85 million. Profits failed to grow sequentially as a result of a drop in margins, as high-yield bonds mature and rates normalize to the market average, which was compensated for by profits realized from the sale of financial investments, lower provisions (-39% q/q), and lower OPEX (-6% q/q).

Loans inched up by 1.5% q/q, slightly higher than the average of the past four quarters of 1.0%, mainly driven by LC extended facilities offsetting FC loan repayments.  Deposits expanded by 7.4%, triggered by both LC and FC funds, pushing LDR ratio down to 38% (-2.2 pps q/q).

1Q21 results key takeaways were:

  • Net interest margin (NIM) plunged by 105bps as high yield bonds mature but continues to stand above the 500 bps recording 5.8% in 1Q21. Treasury exposure increased amid weak lending, to stand at 41% of total assets (+2.7 pps q/q).

  • Non-interest income surged sequentially driven by investment income (related to sale of financial investments) while fees and commission income waned. Thus, non-interest income to operating income improved to stand at 17% in 1Q21 (+3.3 pps q/q).

  • Efficiency weakened slightly where the cost to income ratio recorded 30% (+19 bps) as operating income declined faster than operating expenses and filtered into a declining operating profit by -7% q/q.

  • Non-Performing-Loans (NPL) ratio slightly deteriorated (+14 bps) to 4.4% but with more than adequate provisions coverage of 279% (-2 pps q/q). 

  • Cost of risk came in at 137 bps lower than the previous quarter, recording 2.0% versus an average of 3.8% over the past three quarters. 

  • Effective tax rate recorded 30% (+1.3 pps q/q) versus an average of 33.5% over the past four quarters.

  • Lending grew slightly for the third quarter straight (+1.5% q/q). Deposit growth recorded a solid 7% q/q in 1Q21. The loan to deposit ratio (LDR) decreased by 217 bps to stand at 38% as of Mar-end 2021.

  • CAR strengthened to stand at 31.5% (+9 bps) as of Mar-end 2021. 

COMI trading at multiples below its historical average​

The stock is trading at P/E 2021 of 7.7x and P/B 2021 of 1.2x. P/B is below its historical average P/B of 2.8x between 2004-2019. Egypt banking sector average multiples stand at 4.4x P/E 2021 and 0.6x P/B 2021.


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