Housing & Development Bank [HDBK]: Credit Provisions Flattened Earnings Growth
Neutral and 12MPT maintained; risk raised to High
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Housing and Development Bank [HDBK]
Egypt / Banks / Q4 2021 Results
12M PT: EGP49.0 (+17%)
set on 7 Dec 2021
Investment Rating: Neutral | Risk Rating: High
Earnings hindered by higher CoR
Housing & Development Bank [HDBK] reported its separate financials for 2021. The figures showed flat net earnings of EGP1.83bn (+1.6% y/y). Earnings weakened despite the high 17% y/y growth in net interest income (NII) to EGP3.27bn. On the other hand, growth in total banking revenues did not filter through the bottom line due to higher credit provisions. In 2021, credit provisions grew significantly as HDBK had reversed provisions in 2020 amounting to EGP179mn. However, the bank booked credit provisions of EGP162mn in 2021. Accordingly, cost of risk (CoR) inched up to 0.67% (+154bps y/y). We note that c.32% of total credit provisions was booked in Q4 2021. HDBK witnessed a slight improvement in its cost-to-income ratio at 36% vs. 37% a year earlier, while the effective tax rate upped to 30% (+152bps y/y).
RAOE deteriorated despite a higher equity multiplier
ROAE slipped to 22.0% in 2021 from 26.8% in 2020 (-4.8pp y/y). Despite a slightly higher equity multiplier of 8.3x (+2% y/y), the drop in ROAA was more severe; ROAA dropped to 2.7% (-56bps y/y) on higher CoR. We note that despite the higher equity multiplier, CAR strengthened to 23.6% (+136bps y/y).
Balance sheet grew significantly, thanks to interbank assets
Total assets grew 31% y/y to EGP76bn in 2021, driven by a 33% y/y growth in total deposits of EGP63bn. On the other hand, gross lending grew to EGP26.5bn (+26% y/y). Meanwhile, Treasury exposure fell notably to 33% of total assets vs. 43% a year earlier. Accordingly, gross loans-to-deposits ratio (GLDR) edged lower slightly to 42% vs. 45% a year earlier. We note that the bank opted to utilize most of its deposit growth in interbank assets which contributed c.58% to total asset growth. While CoR upped y/y, asset quality weakened notably on an annual basis, with non-performing loans (NPLs) surging to 10.0% (+2pp y/y). Hence, NPL coverage declined below 100%, recording 83% vs. 121% a year earlier.
Neutral and 12M PT maintained; risk raised to High
In view of 2021 results, we raise our risk rating from Medium to High on concerning above-average NPL ratio. We note that HDBK’s BoD has proposed a DPS of EGP2.5/share, implying a 6% yield. That said, we maintain our 12MPT at EGP49.0/share (ETR +17%); hence, we maintain our Neutral rating. HDBK is currently traded at 2022e P/E and P/B of 3.0x and 0.6x, respectively.
Amany Shaaban
Equity Analyst
T +202 3300 5720