Earnings driven by interest income, and lower provisions, despite growing OPEX
CIEB 2Q22 consolidated bottom line recorded EGP524 million, pre minority interest and appropriations (+7% q/q, +35% y/y), 11% higher than Pharos estimates of EGP471 million, bringing 1H22 bottom line to EGP 1,015 million (+32% y/y).
Sequential performance was limited by lower investment income which wiped out the effect of robust margins, while lower provisions supported earnings, coupled with slight growth in OPEX and stable margins.
The annual performance was driven by strong margins, robust non-interest income, lower provisions despite higher OPEX, and effective tax rate.
1H22 strong growth came on the back of strong operating income, coupled with lower provisions and effective tax rate despite higher OPEX.
The balance sheet showed healthy growth where gross loans expanded by 5.3% q/q, bringing YTD growth to 9% while deposits remained stable at 0% q/q, and 2% YTD growth. LDR ratio stands at 69% (+321 bps q/q, +298 bps y/y).
2Q22 results key takeaways were:
Margins strengthened to record 6.4% (+46 bps) as treasury investments to total assets increased recording 24% (+367 bps q/q) as of Jun-end 2022.
Non-interest income shrank sequentially by 24% despite a surge in fees and commissions income, mainly due to a higher comparable quarter that included a surge in ‘other income’, where non-interest income to operating income declined to stand at 23% (-730 bps q/q).
Efficiency deteriorated by 1.2 pps q/q where the cost-to-income ratio recorded 34.8%, triggered by a growing OPEX (+3% q/q, +12% y/y) against a stable operating income sequentially.
Booked provisions came in at EGP15 million implying a cost of risk of 0.2% vs an average of 0.9% over the past 4 quarters. Asset quality improved where NPL ratio recorded 3.5% (-58 bps q/q). Provisions coverage increased to 128% on faster growth as of Jun-end 2022.
Effective tax rate recorded 27% in 2Q22, sequentially stable but lower by 2 pps annually.
Loan portfolio expanded over 2Q22 by 5.3 % q/q, mainly driven by the corporate segment, bringing YTD growth to 9%. Deposits remained stable at 0% q/q, and 2% YTD growth. LDR ratio stands at 69% (+321 bps q/q, +298 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 surpass our estimates of 12% y/y growth in 2022, 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 with an average dividend yield of 10% and a payout ratio of around 45%.
The stock is currently trading at 4.8x P/E22 and 0.8x P/B22 with an ROAE of 18%.