Good development of activity in Q2 2014, with strong growth of our portfolio of clients
Our continued growth in Q2 2014 was highlighted by an increase in our loan outstandings of 4.8% for the quarter, with all customer segments contributing well to this growth. Our loan book has now grown by 6.0% in 2014 to date, a very satisfactory performance given the still low demand by our Corporate clients, demand that we are confident will pick up as the country’s economic situation stabilizes. Retail and Private Banking individual lending again performed very well, with loans to this segment now up 11.5% in 2014.
Deposits increased by 1.7% in Q2 2014, with deposits now up 4.9% in 2014 to date, our Corporate and Retail & Private Banking segments the standout performers in this area.
A satisfactory development in 1H 2014 has been achieved, with a very significant growth of our client portfolio (+17,500 net clients for 1H 2014).
Revenues better than expectations, though below an exceptional Q2 2013
While revenues continue to be better than expectations, supported by excellent trade finance and strong trading results, revenues are now slightly below those achieved in 1H 2013. This is primarily driven by an exceptional Q2 2013 FX performance, where the Bank benefited from both significantly higher FX margins, and exceptional transactions.
Total revenues are 3.1% below 1H 2013, with net interest income up 0.7% (2013 benefited from one-off suspended interest reversals, excluding which our core NII is up around 4.5%), net commissions and fees increasing by 30.0%, while other income (comprising FX, option premium, trading and investment income) is down by 52.7%, this reduction driven by the change in market practice for FX pricing.
On a pro-forma basis, excluding FX revenues, the Bank’s revenues are up 7.8% over 2013.
Excellent performance in efficiency and cost management
Expenses have decreased by 2.9% compared to 1H 2013, due to continuous cost cutting efforts and productivity gains, while the cost to income ratio has remained stable at 39.8%.
To improve our productivity further, CAE will shortly move into its new headquarters in New Cairo, with much better operational logistic efficiencies, as well as a “Green” certified environment friendly facility. We will also soon implement our new Core Banking System, which will provide a “State of the Art” platform to better serve clients and increase productivity.
Stabilization of cost of risk
The banking sector continues to experience some challenges in the risk environment, with a number of clients impacted by the economic slowdown, in particular within the SME client segment. CAE had addressed this with increased provisioning in Q1 (concentrated on 1 single counterparty), and an increase in our non-performing loan (“NPL”) ratio in the first quarter. While we have continued to book provisions in Q2, no major new risky files have been identified, and our NPL ratio has stabilized in the second quarter.
Apart from the risk challenges within the SME portfolio, there has been some stabilization in the risk environment in general, with both Corporate and Retail risks remaining quite low.
Robust profitability and solvency, impacted by increase in tax rate
On the regulatory side, the Corporate Tax rate has been increased from 25% to 30%. While this was only formally approved in June, the higher rate is retrospective from the beginning of 2014, and has significantly impacted our 1H 2014 results, with the additional tax cost for 2014 to date booked in Q2.
The Bank’s net income before tax for 1H 2014 is EGP446.4 million. This compares with EGP482.2 million last year, and has therefore decreased by 7.4%. Net income after tax is 15.1% below 2013, significantly impacted by the increase in Corporate Tax rate.
Our Return on Equity for 1H 2014 is 27.3%, while our capital adequacy base of 14% provides us with ample room to grow our business further.
