Earnings Report /

Credit Agricole Egypt: 1Q22 – Healthy operational quarter; LDR expands

  • Lower provisions boost earnings on annual and sequential basis despite higher NPL

  • Balance sheet showed healthy growth as gross loans expanded by 3.9% q/q, while deposits grew at a slower pace of 2% q/q

  • CIEB is trading at attractive multiples with P/E22 of 5.9x, and P/B22 of 1.0x

Strong quarter driven by interest income, other income, and lower provisions, despite growing OPEX

CIEB 1Q22 consolidated bottom line recorded EGP492 million, pre minority interest and appropriations, (+14% q/q, +30% y/y), 4% lower than Pharos estimates of EGP511 million.

Healthy sequential performance was driven by: 1) healthy net interest income, 2) strong ‘other income’ driven by reversals of other provisions, 3) lower booked provisions, and 4) slightly lower effective tax rate, despite growing OPEX. Strong annual performance was driven by: 1) strong operating income driven by both interest and non-interest income, 2) a plunge in provisions despite healthy OPEX and  higher effective tax rate.

Balance sheet showed healthy growth where gross loans expanded by 3.9% q/q, while deposits grew at a slower pace of 2% q/q, so that LDR ratio stands at 65% (+153 bps q/q, +332 bps y/y).

1Q22 results key takeaways were:

  • Margins remained almost stable at 5.9% (-7 bps) while treasury investments to total assets increased recording 20.5% (195 bps q/q) as of Mar-end 2022.

  • Non-interest income expanded annually and sequentially by 10% and 38% respectively, on the back of higher ‘other income’ despite fees and commissions contracting, to stand at 31% to operating income (+590 bps q/q)

  • Efficiency deteriorated by 1.3 p​ps q/q where the cost-to-income ratio recorded 33.6%, triggered by a growing OPEX (+7% q/q, +9% y/y)

  • Booked provisions came in at EGP75 million implying a cost of risk of 1.0% vs an average of 1.1% over the past 4 quarters. Asset quality deteriorated where NPL ratio recorded 4.1% (+80 bps q/q). Provisions coverage decreased to 122% on faster growth of NPLs than provisions reserve as of Mar-end 2022.

  • Effective tax rate recorded 27% in 1Q22, sequentially lower by 1 pps and annually higher by 4 pps, on lower higher treasury investments.

  • Loan portfolio expanded over 1Q22 by 3.9 % q/q, driven by both retail and corporate segments. Customer deposits expanded at a slower rate by 2% q/q, so that the LDR stands at 65% as of Mar-end 2022 (+153 bps q/q, +332 bps y/y).

CIEB will reflect healthy recovery onwards

In 2021, CIEB has been witnessing some recovery across all accounts from the slump witnessed in 2020. We project continued recovery in 2022 especially after the bank met the minimum required capital of EGP 5 billion in 2021. We project the bottom-line to expand by 12% on higher interest and non-interest income, especially with better balance sheet growth, and controlled OPEX, that is in addition to normalized CoR compared to historical averages.

CIEB has always been ahead of Egyptian Banking stocks in terms of cash dividend distribution. BoD proposed cash dividends distribution of EGP 0.74/share with a total amount of EGP925 million financed from 2021 net profits implying a payout ratio of 57% which is higher than our estimates of 45%, implying a dividend yield of 9.7% (versus our estimates of 7%).

CIEB is trading at attractive multiples with P/E22 of 5.9x, and P/B22 of 1.0x.