Today’s Trading Playbook
Amr Hussein Elalfy CFA | Head of Research
KEY THEMES
After CIB [COMI] had reported its Q3 2020 results with no red flags—in our opinion, investors’ eyes will now shift to somewhat macro drivers. This includes the interest rate decision by the Central Bank of Egypt next week (which we think would be a hold). With the COVID-19 vaccine make inroads into more countries around the world, the overall investment sentiment should be conducive to global markets recovery. Yesterday, the Fed vowed to maintain interest rates on the U.S. dollar close to zero until at least 2023. Thus, it should be a matter of time until global investors find their way back to certain emerging markets, such as Egypt.
Speaking of Egypt’s market bellwether, COMI’s Q3 2020 conference call yesterday, which our banking analyst Shihab M. Helmy attended, assured investors of the bank’s health. The bank’s CEO said that one third of the EGP1.6bn provisions booked in Q3 were precautionary in nature based on the CBE guidance with the rest of the provisions due to IFRS9. The CEO said that the CBE’s audit report was related to the compliance and control departments to ensure adherence to the CBE rules and regulations, but the final report is not finalized yet and is expected to be out by the beginning of next year. What is more soothing to investors is perhaps that we should not expect any material upcoming provisions in Q4. As for 2021, the bank is targeting loan growth of 20-25%, driven mainly by local currency loans as they are not expecting any near-term recovery in foreign currency loans. Working capital loans will continue to lead the loans growth, particularly with 60-70% capacity utilization for companies in sectors such as oil and gas, while the tourism sector is not expected to recover any time soon. The bank’s CEO expects EGP to appreciate in view of expected foreign currency inflows into the country, thanks to carry trade and remittances. That said, we should not expect any dividends for 2020, which is not only limited to COMI but has been prevalent across the banking sector in Egypt. Dividends should resume starting 2021 if the bank’s CAR ratio remains around the 30% level.