QNB ALAHLY (QAA), 97.12%-owned by QNB, reported 1Q2016 net income of EGP905 million, up 39% Y-o-Y and 4% Q-o-Q. Earnings growth Y-o-Y was boosted by the lower tax rate of 22.5% versus 30% a year ago, but pre-tax income growth was also strong, up 27% Y-o-Y and 4% Q-o-Q, thanks to revenue growth of 29% Y-o-Y and pre-provisions income of 33% Y-o-Y. The devaluation of the EGP led to a large FX revaluation gain through the income statement of EGP224 million, as QAA has a share of its shareholders’ equity denominated in USD. Excluding this gain, revenue growth was 15% Y-o-Y.   Loan growth slows in 1Q2016: Total loans increased 1% Q-o-Q, following a 7% Q-o-Q increase in 4Q2015. On a Y-o-Y basis, loan growth was 23%.  Corporate loans increased 1% Q-o-Q, compared to growth of 7% in the previous quarter. Loan growth was slow despite the positive impact of the devaluation of the EGP, which leads to a higher EGP value of USD-denominated deposits. Retail loans increased 2% compared to 5% Q-o-Q growth in 4Q2015. Q-o-Q retail loan growth in 1Q2016 is the weakest in the past eight quarters, and this is likely the result of the new debt burden ratio of 35%, which the CBE introduced last January.   Deposit growth unchanged from 4Q2015: Customer deposits increased 23% Y-o-Y and 4% Q-o-Q. Retail deposit growth rebounded 6% Q-o-Q after the retail deposit base had fallen slightly in 4Q2015. The share of demand deposits and savings accounts was unchanged Q-o-Q at 28%.   Net interest spread widens by 14bps Q-o-Q: Funding costs fell slightly, and asset yields increased during the quarter. We believe the full impact of higher yields on T-Bills after the increase in policy rates will not have been fully reflected in 1Q2016 as it took place at end of quarter. Net interest income increased a strong 35% Y-o-Y and 7% Q-o-Q. Fee income fell 4% Q-o-Q, due to lower volumes of trade finance.   Slight Q-o-Q drop in NPLs, but past due loans increase: The NPL ratio fell to 2.5% in March 2016 compared with 2.6% in December 2015, thanks to a slight decline in NPLs. Past due loans, however, increased 52% Q-o-Q. This might explain the high provisioning charge in 1Q2016 of 167bps versus 66bps in 4Q2015 and 103bps in 1Q2015. NPL coverage increased to 166% compared to 139% in December 2015. (Earnings release, Elena Sanchez-Cabezudo, Rajae Aadel)