CAIRO: Commercial International Bank's (CIB) results for the second quarter of 2009 represent a slide for one of the industry leaders, which finds itself in the midst of an expansion campaign. The bank reported net profits for the period between March and June of LE 439.0 million, a 17 percent drop from the same three months last year and a 7 percent fall from the first quarter of 2009. Net profits for the second quarter of 2008 stood at LE 527.3 million. The bank's faltering second quarter performance also meant that net income for the first half of the year came in 8 percent below first half of 2008 numbers. "The results are lower than our expectations (LE 437 million), on the back of a weaker performance in the second quarter of 2009, affected by slower net interest income, investment income and balance sheet in addition to a higher cost-to-income ratio, wrote Reham ElDesoki, economist at Cairo-based investment bank Beltone Financial. In its statement, the bank argued that its performance was strong in the context of the global economic crisis, which has eaten into the profits of banks around the world. "The year 2009 has been challenging for the banking sector globally. The steep drop in economic activity and subsequent reduction in interest rates have directly impacted CIB's profitability, CIB said in its statement. CIB is in a sensitive spot. The bank is undergoing a period of intense growth in its retail sector, meaning that it's sunk significant cash into building those operations. According to Hisham Ezz Al-Arab, who spoke last month with Daily News Egypt, the bank had already increased its total number of employees from 2,400 to 4,100 as it broadens the reach of its retail division. Ezz Al-Arab said that Egypt is heading for a bank breakthrough, wherein Egyptians will grow broadly comfortable with the banking sector and flock to them to open accounts. "We decided to make the investments in terms of resources, people, technology, process, everything a year ago, although the breakthrough did not happen yet. But we have a sense that this is coming sometime in late 2010, early 2011, he said. But in seeking to grow its retail sector, the bank has made itself more vulnerable - a fact that became apparent with the release of its latest results. It's meant that CIB is spending a lot without reaping the rewards. This means that CIB's margins have been spread thin. "As a result of our ongoing investment in our consumer banking franchise, our operating expenses have continued to increase relative to our slowing revenues. We reaffirm our commitment to a conservative cost discipline. The management will continue to diligently review all our expenses as well as any new initiatives from the perspective of value and resource optimization, the bank said in its financial statement. Most analysts, though, have not met the news with too much alarm. Many expected CIB to take a hit in its earnings report. And the bank's heavy investment in its retail sector has meant that analysts are bullish about the bank's outlook. The forecasts for the three-month period from five analysts Reuters spoke to ranged between LE 392 million and LE 537.5 million. The average of the forecasts was LE 441.6 million. The bank's ambitious plan has been rewarded by investors, who have continued to drive the stock price higher. Since hitting around LE 30.0 per share back in March, the stock has recorded steady growth and today trades above LE 50.0. "We believe that the share price has rallied with the rest of the market, to a point where it is fairly valued, wrote ElDesoki. In its earnings statement, the bank said its net interest income grew from LE 367.4 million in the second quarter of 2008 to LE 463.8 million in the second quarter of this year. Dividend income, though, fell over LE 40 million over the same stretch. Given the state of the banking sector and owing to CIB's ambitious growth plan, analysts appear willing to give CIB a pass on its latest results. They'll be watching, though, to see if the bank can start generating returns on its growth-oriented investments.
