EUR 9.24 For Business Accounts Only

Egypt's Banking Sector - FLOATATION EFFECT ON BANKS’ FINANCIAL STATEMENTS

​Due to the expected significant effect of EGP floatation on Egyptian banks’ financial statements, we opted to held hypothetical scenario to address the effect of the new exchange rate on valuation of CIB and CIEB. In this scenario, we assume the FX rate to stand out at EGP 14/USD at the end of December 2016, as well as assuming various changes in balance sheet items during 4Q2016. This scenario yields a F.V of EGP 63.05/share for CIB and EGP 32.86/share for CAE, implying “Reduce” recommendation for CIB and “hold” recommendation for CAE. According to our estimates, CIB is currently traded at 2017 P/E of 15.85, and CAE is traded at 2017 P/E of 7.24. While foreign currency (FC) deposits and loans are expected to soar post the floatation, hence risky weighted assets are expected to increase, leading CAR ratio of both banks to decrease. However, CIB and CAE both enjoy high CAR ratio recording 13.9% and 14.85%, respectively at the end of September 2016. This reflects the ability of both banks to maintain the required CAR ratio without breaching the minimum required CAR of 10.63%. Moreover, banks are discussing with the CBE the possibility to add the interim profits to the equity when calculating the CAR ratio, on quarterly basis.