Egyptian banks should see moderate
loan growth and margin expansion in H2
2009, despite earnings pressure
􀀗 Ungeared balance sheets and high asset
quality should cushion them against
current economic headwinds
􀀗 Ratings unchanged: CIB, NSGB and CAE
at Neutral (V) and EGB at Underweight
(V). Increasing all target prices by an
average of 9% following changes in
estimates and reduction in COEs
2009e-2010e earnings: We expect Egyptian banks to report
some earnings pressure during H2 2009 driven by tax charges,
the absence of market-based investment gains and an increase
in loan provisions compared to H1 2009. But we think margin
pressure should be slightly alleviated during H2, with the
Egyptian banks we cover expected to expand their loan books
in the current low interest rate environment and continue to
benefit from cheaper cost of funds. In addition, we expect fees
& commissions growth to remain robust with economic
conditions likely to recover during Q4 2009. We have reduced
our 2009 earnings forecasts for the banks under our coverage by
2% and raised our 2010 earnings forecasts by 5% on average.
Valuation and risks: We maintain our Neutral (V) ratings on
CIB, NSGB and CAE and our Underweight (V) rating on EGB.
Following our estimate changes and reduction in COEs, we
have raised our target prices by 9% on average. The Egyptian
banks currently trade at a relative premium (average 2009e
P/BV and ROE of 2.1x and 21%, respectively) vs. the
CEEMEA banks' P/BV average of 1.9x and ROE of 13.5%. We
believe the market has largely discounted their balance sheet
strength and controlled levels of NPLs. However, asset quality
remains one of the major downside risks to our valuation,
particularly within the corporate loan book.