Egypt's CIB reports 20 pct profit drop on 'pre-emptive provisions'

Country's largest private bank set aside LE321 million to hedge against economic uncertainties, taking a hefty toll on its bottom line, figures show

Commercial International Bank (CIB) saw its consolidated net profits tumble 20.1 per cent in 2011 as the economy slowed in the wake of Egypt's popular uprising, the country's largest private bank said on Wednesday.
The decline in full-year profit was "primarily driven by much higher provisions" taken "as a pre-emptive measure to cope with the on-going economic upheaval Egypt is witnessing," the bank explained in an emailed press release.
Egypt's business sector has been struggling to recover from the disruption caused by last year's uprising which led to the overthrow of president Hosni Mubarak.
The country's banks have also been hurt by a weak financial market and an exodus of foreign investors
CIB said its net profit for last year slid to LE1.62 billion ($268.4 million) from LE2.02 billion in 2010.
Net profit for the fourth quarter fell by 9 per cent to LE549.1 million, Reuters calculated by subtracting figures for the bank's previous nine months.
The bank allocated LE321 million to provisions in 2011 -- a massive increase on the LE6 million it set aside for the same purposes the previous year.
Capital gains from the sale of investments in 2011 fell 80 per cent to LE39 million after the bank chose not to sell investments at current market prices, it said.
Net interest income rose 19.2 per cent, helped by higher treasury bill and local currency interest rates, the bank added.
The average yield on one-year Egyptian treasury bills climbed from 10.44 per cent in January 2011 to 15.19 per cent in December as the government sought to finance its swollen budget deficit, central bank data shows.
Interest rates on loans also rose as government borrowing crowded out lending to the private sector.
The bank's deposit base recorded a 13 per cent increase but was driven by growth in foreign currency liabilities. These increased by 22 per cent to comprise 42 per cent of the bank's total deposit base.
Following Egypt's uprising, depositers are showing an increasing preference for holding their savings in US dollars, fuelling a sharp devaulation of the local currency.
Central bank figures indicate that non-governmental foreign currency deposits in the country's banks increased by 14 per cent in November 2011 compared to the previous year.
The growth in foreign currency deposits might have helped CIB's interest receipts, Cairo-based investment bank Beltone Financial said in a note on Thursday.
But if this trend continues it might hurt the bank's profitability, as foreign currency deposits must be channelled to foreign currency loans as per Egyptian banking laws.
"During FY2011 there was minimal FCY [foreign currency] lending opportunities which might continue into 2012," Beltone explained.
CIB said non-interest income fell 26.6 per cent because of a slowdown in the banking sector, while dividend income dropped by 63 per cent as companies retained more of their earnings as a precautionary measure.
These drops in CIB's non-interest income led Beltone to warn of a long-term threat to the bank's profitability if the trend persists.
Net loans increased to LE41.07 billion at the end of 2011 from LE35.18 billion a year earlier, CIB said.
The growth in loans portfolio helped CIB keep its non-performing loans (NPLs) ratio solid at 2.8 per cent in 2011 a slight increase above 2.7 per cent the year before.
NPLs, however, increased by 21 per cent to sit at LE1.2 billion
Provisions coverage remains strong at 136 per cent as of December 2011.
CIB is trading 4.57 per cent up at LE24.82 per share on Egypt's stock exchange just before the close of Thursday's session.
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