Earnings Call Transcript - CIB Q4 2025

Unknown Executive, Host

Good afternoon, everyone, and welcome to CIB's 4Q 2025 Earnings Call. Thank you for joining us. This is Noor from the CI Capital Research team, and we are pleased to host today's call. From management, we have Mr. Hisham Ezz Al-Arab, CEO and Executive Board member; Yasmine Hemeda, Head of Investor Relations; and Nelly Zeneiny, Investor Relations Manager. We will begin with a summary of our 4Q 2025 performance, after which we will open the floor for questions. I will now hand the call over to management.

Nelly Zeneiny, Investor Relations Manager

Good morning, and good afternoon, everyone. This is our customary disclosure statement. This call is intended for investors and analysts only. As such, if any media representative has gained access to this call, kindly hang up now. Certain information disclosed during this earnings call consists of forward-looking statements reflecting the current view of the bank with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of the bank to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including worldwide economic trends, the economic and political climates of Egypt, the Middle East and changes in the business strategy along with other various factors. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may materially vary from those described in such forward-looking statements. The bank undertakes no obligation to republish revised forward-looking statements to reflect changed events or circumstances. And this ends the disclaimer statement. I'll now hand it over to Mr. Yasmine Hemeda to give a brief overview of the full year 2025 results. Yasmine, please go ahead.

Yasmine Hemeda, Head of Investor Relations

Thank you, Nelly. Let me start by saying that while everyone was expecting 2025 to be an adjustment year where we would continue to see the same trends as we had been seeing in 2024, it turned out to be a year filled with very, very positive surprises. It was a year of great economic improvement and consolidation with the easing cycle hitting its stride. Inflation dropped to 12% and cumulative rate cuts reached 725 basis points by year-end, resulting in a much more business-friendly environment. In addition, foreign currency inflows hit new heights and tourism, remittances and exports, which more than compensated for the drop in the Suez Canal revenues. CBE reserves reached EGP 50 billion. NFAs in the banking sector exceeded the EGP 20 billion mark. And consequently, the EGP strengthened against the Dollar reaching 46.47 EGP but more significantly was the constant availability of the interbank market, which was and is critical to company's operations. As a result, CIB was able to grow its loans by EGP 177 billion or 44%. 56% of this was in local currency and 50% was in the form of CapEx, which was a very, very positive surprise for all of us. Gross loans reached EGP 576 billion, and our LDR hit 52%, with the local currency portion reaching an all-time high of 71%, further confirming the long-awaited economic revival. Consequently, we're very happy to report yet another outstanding performance that is driven by genuine growth in core business activities with CIB growing its top line by 19% year-on-year and a very healthy balance sheet growth of 19%. All this was achieved while maintaining NIMs at 8.95%, which is a very contained compression that came in by 53 bps and this was mainly due to the bank's deposit base, where deposits grew by 14%, but more importantly, local currency deposits grew by 21%, and CASA now stands at 61% of the total deposit base. This helped mitigate NIM compression and supported margins and spreads despite the aforementioned 725 basis point cuts. Credit quality remained very solid. And with the ratification of the new ECL model, the bank reversed EGP 13.1 billion of excess provisions. But what is more important to note is that moving forward, the newly calibrated ECL will more accurately reflect the bank's asset quality. NPLs recorded 1.67%, with a coverage ratio of 358%, but what is more relevant is that the performing loan coverage ratio hit 7.1%. Costs remained very much strained with a cost to income of 15%. And all of this came together to register an all-time high of net profit after tax of EGP 82.2 billion, representing 49% above 2024. And even upon normalizing for the impairment reversal, we still recorded an all-time high of EGP 70.6 billion and the 41.5% ROE. On the capital front, CAR reached 27% and given the rationalization in the macro environment and our adequate level of capital, the Board is proposing a cash dividend of EGP 6 per share, which translates to a payout ratio of 30% of the distributable portion of the 2025 profits. Moving into 2026, we remain very, very positive about the economic outlook for Egypt in general and about the ability of CIB in particular, to safeguard and create value to all its relevant stakeholders while remaining at the forefront of change, and we're very, very excited to be embarking on our 5-year journey ahead. On that note, I think we can open it up for Q&A. Thank you, Noor.

Operator, Operator

Our first question comes from Rahul Bajaj.

Rahul Bajaj, Analyst

This is Rahul Bajaj here. Congratulations on the impressive results. I have three questions, if I may. First, regarding the fee income line, we've observed a significant increase in the fourth quarter compared to the recent run rate of about EGP 2 billion to EGP 2.2 billion in previous quarters, with the fourth quarter reaching approximately EGP 2.8 billion to EGP 2.9 billion. Is there a one-off factor contributing to this increase? What is driving this substantial growth, and can we expect this level to be sustainable into 2026 for our quarterly modeling? My second question concerns margins. As Yasmine noted, margins performed strongly despite notable rate cuts. How should we approach margins going forward? Initially, the decoupling of the sovereign rate seems to have played a role, and now deposits are also contributing. Can we anticipate these improvements to persist? Should we expect margins to remain stable into 2026, or do you predict they will come under pressure as rates decline? How should we model margins moving forward? Lastly, my third question is regarding guidance. Could you provide any specific guidance for 2026? That would be very helpful. Thank you.

Yasmine Hemeda, Head of Investor Relations

Sure. I'll address the second and third questions, and then I'll pass it to Mr. Omar El-Husseiny to discuss the margins. Regarding fees and commissions, there was a one-time item recorded in the fourth quarter of approximately EGP 1.5 billion, which came from an asset sale used to settle debt. After normalizing for that, we saw a quarter-on-quarter growth of about 112%. You shouldn't anticipate one-time items of that size in the future. However, we do expect growth from our core commercial banking activities, and with projected loan growth that we are budgeting for over the next five years, particularly in 2026, we can expect an increase in the net fees and commissions. The overall share of fees and commissions, as well as noninterest income in total revenues, should also gradually rise, which has been long overdue. This expectation is driven by anticipated loan growth, which I will discuss further in relation to our guidance along with the typical fees and commissions associated with that. Now, I’ll hand it over to Omar to cover the margins, and then I’ll return with the guidance.

Omar El-Husseiny, Banking Executive

Good morning and good evening, everyone. So for the margins, it's a bit complex because there are lots of moving variables that you need to take into consideration. One, the balance sheet mix between the local currency and the foreign currency; two, on the local currency, specifically, we have been on the asset side and the liability side. So on the asset side, we have been stretching the duration on the fixed side during the past period of time. And the composition of the liabilities, as Yasmine was mentioning, we have around more than 60% CASA to term deposits. So that is helping us whenever interest rates are coming down, the easiness of reflecting this to our customer liability pricing is much easier and faster when it comes to our pricing; third, when we started a couple of years to shift from the sovereigns to loans because we're expecting interest rates to come down. And as soon as interest rates start coming down, we will be more dependent on noninterest income, that's from one side. But by virtue of nature, when you shift from sovereigns to loans, that in itself hurts the NIM because of the withholding tax. So for instance, if you're buying 1-year T-bills at 25% and you're shifting to a loan right now priced at offer corridor at 21%. So on the NIMs, you have the gross of 25% versus the loans of 21%. So whenever we're shifting from sovereigns to loans, that in itself is dragging the local currency NIM down.

Yasmine Hemeda, Head of Investor Relations

Just to add a point, while loans may not significantly enhance net interest margins compared to sovereigns, any compression in net interest margins will be more than offset by the growth in return on equity, primarily driven by fees and commissions. In response to the guidance question, we anticipate growth of 15% to 20% over the EGP 70.6 billion bottom line. It's important to highlight that a large portion of this growth will come from core commercial banking activities. Therefore, we will see a greater contribution from noninterest income compared to net interest income, which has been the trend in previous years. Regarding deposits, we expect 15% to 20% growth, with at least 50% to 60% of that growth originating from current and savings accounts. While the days of achieving 40s in return on equity are likely behind us, we are very confident in sustaining return on equity above 30%. This will largely depend on the volume of loan growth, specifically the balance between capital expenditures and working capital facilities. We predict loan growth in the range of 30% to 35%. We expect the trends observed in 2025 to persist into 2026, with capital expenditures becoming more prominent in the latter half of 2026. Overall, we foresee strong demand. Non-performing loans will remain manageable, and the cost-to-income ratio will remain below the 25% mark.

Hisham Ezz Al-Arab, CEO

The point which is very important when you talk about the CASA and the increase as a percentage, you have to keep in mind that the investments we made in the digital platform were the key driver for increasing the CASA account and the saving accounts because now it became easier for people to move money and became more friendly for them to be exposed to the different products that could suit their life cycle or the financial requirements. In the past, it was deposit or CDS. Now we can see I can get interest on my saving account day to day or monthly or whatever. So I think personally that the more digital-friendly platforms, the more business growth we're going to see. And that is very obvious when we analyze the reason behind the increase in numbers.

Yasmine Hemeda, Head of Investor Relations

So you won't pay me more?

Hisham Ezz Al-Arab, CEO

I look after you. I look after you and the 8,000 people. It's not me; it is the Board who decides.

Rahul Bajaj, Analyst

This is clear. Just one quick clarification, the 15% to 20% bottom line growth. This is taking into account the big write-back you had in 2025 on the provision line. So that is in the base?

Yasmine Hemeda, Head of Investor Relations

Yes. So this 15%, 20% is above the EGP 70.6 billion, which is basically normalized for the EGP 13.1 billion.

Hisham Ezz Al-Arab, CEO

When we discussed the ECL model, we went through a thorough process and learned a lot, which is why if we notice any changes in dynamics and assumptions, we will likely review the numbers again. This is an ongoing process and not a one-time event.

Operator, Operator

We also have another question in the Q&A box on the launch of the Digital Bank. So when can we expect the launch of the digital bank how should we think about its contribution to the group's profitability over time? And do you see any scope to scale the digital bank into other markets over the long to medium term.

Hisham Ezz Al-Arab, CEO

Well, the digital bank, we just applied for the license. I think our application in my opinion and other people's opinions was a solid application. The value proposition there is practically cost saving for the bank while leveraging what you call it, the I wouldn't say unprofitable, but high-cost customers that we can make much more money from understanding the lifestyle in different profiles, plus the Gen Z is looking for lifestyle application. They have a plan, and I think their plan is to target 10 million customers within the coming 5 years. That's good. I think the number will be north of that. It will be higher. This is my personal, by the way, not the bank projection; it's my personal view because of what I have seen in preparation for the digital bank is outstanding, to be honest with you. Plus, I had a meeting during the day with several people who are involved in this industry, some of them are international players without naming names. And practically, I feel very comfortable after validating our business model and technology and the go-to-market strategy.

Yasmine Hemeda, Head of Investor Relations

In terms of the contribution of the digital bank to the overall group revenues, I think like we presented in the Strategy Day, by year 5, it should contribute to around 10% to the overall revenues of the CIB.

Hisham Ezz Al-Arab, CEO

It's not just about the revenues. I need to mention that our goal is to launch before the end of 2026. If we achieve this launch in time, it is likely that sometime in late 2027 or early 2028, you will seek a capital increase that could involve other minority investors. Your valuation will change significantly. Currently, your investment is relatively small. We need to consider the market valuation in this industry, which is much higher than that of traditional commercial banks. This will certainly be reflected in your valuation, along with the expectations after three years of operation, once we start seeing results. Most likely, we'll explore other markets, although we haven't finalized which ones yet. We have some ideas and have learned valuable lessons from other international players about what to consider when expanding into different countries, which will help us avoid some trial and error in selecting the next market.

Operator, Operator

Thank you. We have another question on capitalization and dividends. So what are your thoughts on the bank's capitalization trajectory? And what is your dividend policy over the medium term?

Hisham Ezz Al-Arab, CEO

The dividend policy reflects our current risk tolerance, and the risks related to macroeconomic conditions are more manageable now. About ten months ago, I indicated that 70% of the risks on our balance sheet stem from monetary and exchange policies. Currently, we all feel secure about these policies. This is the primary risk, and I won’t revisit past issues like hyperinflation; the situation has changed significantly. Thanks to these changes, our capacity to evaluate and take on risk, as well as assess capital needs, has improved. We maintain a buffer of 20% capital before dividends to support the expected strong growth in our loan portfolio. Furthermore, we are thoughtfully evaluating new opportunities, which will require capital. Our approach is based on projections, and I prefer not to hold excess capital in these circumstances; instead, I aim to keep only what is necessary to safeguard the bank’s resilience while funding our operations.

Operator, Operator

Thank you. We have another question on trading income. So would annualizing 4Q 2025 trading income be a reasonable estimate for 2026's trading income?

Yasmine Hemeda, Head of Investor Relations

No. I mean, because like we said before, there was a one-off thing. So I mean you shouldn't be annualizing for that. And you should actually be modeling for more contribution from the fees and commissions line versus the trading income to the overall noninterest income.

Hisham Ezz Al-Arab, CEO

I would like to add that the transaction we completed in the last quarter was part of our regular business operations focused on recovering non-performing loans. Our team put in a lot of effort on this recovery, which generated good returns for us. This is part of our commercial activities. When we have loans that have been written off or fully provided for, we don’t just abandon them. Instead, we utilize our investment banking experience to see how we can recover those assets. This is a clear example of our asset recovery strategy.

Operator, Operator

We also have another question on cost-to-income. So can you please confirm if the cost-to-income guidance of below 25% is administrative expenses or total operating expenses. Also, how should we think of other operating expenses or income given the volatility in the last 1 to 2 years?

Hisham Ezz Al-Arab, CEO

In the last 1 to 2 years, we have had serious challenges with the exchange rate. And that was the key. I mean, for example, contracts at $100,000, nothing changed. But from the $100,000 at EGP 9 or at EGP 17 or at EGP 50, what was challenging to manage and project. Now we have a stable exchange market. I don't see those spikes anymore. As for the cost of income, this is the cost of income for the operation and administration as well. So practically, the 25% is a decent ceiling to have, taking into account the strong earnings because expenses are going up. And don't believe Yasmine, she's getting paid well. I'm not going to discuss her package publicly, but the cost is going up, but the revenues touch wood are beating the cost increase. I hope that would answer your question.

Operator, Operator

Thank you. We also have a question on loan growth. So what were the key drivers behind the sequential loan growth in 4Q, 2025?

Hisham Ezz Al-Arab, CEO

The main driver for the loan growth was the increase in local currency loans. This is why our loan to deposits ratio rose from the mid-40s about a year ago to approximately 71% on the local currency balance sheet. Additionally, 50% of the loan growth was attributed to capital expenditures, which aligns with our perspective on the economic situation.

Operator, Operator

There is also another question that says, which countries rank highest in terms of potential M&A opportunities as you look to expand beyond Egypt? Will this expansion be for corporate banking, retail, or digital? And can you discuss your experience thus far in Kenya and the lessons learned?

Hisham Ezz Al-Arab, CEO

I prefer not to make definitive statements, so I will tread carefully. We are involved in projects beyond Egypt, but I cannot specify whether they pertain to the fintech bank, retail, corporate, or the entire financial institution. However, these initiatives are part of our daily operations. Regarding our experience in Kenya, we have a new CEO who started recently; the previous CEO made significant improvements by stabilizing the situation, reorganizing, and hiring the right talent. Our current CEO is well-respected in the local market, and you can find his biography on their website. From our experience in Kenya, we learned that acquiring a company requires active management; you cannot just let it operate independently. It's essential to offer shared services and support the local team because the goal of the acquisition is to enhance the business. Typically, private equity firms do not purchase a company without being involved at the Board level to assist management. This may have been a misstep on our part, but we have made changes, and I believe we are now heading in the right direction.

Operator, Operator

Thank you. This is very clear. We also have a question on the ECL provision reversals in 3Q. So at what point in the future does the ECL add reserve of EGP 13 become available for potential distribution or qualify as CET1 capital? What threshold criteria needs to be fulfilled before this becomes part of your core capital? And does this leave scope for any potential increase in payouts in the future?

Hisham Ezz Al-Arab, CEO

We are currently conducting certain studies regarding the EGP 13 in special reserve. I believe that if we present a solid case to our regulator and we are comfortable with our approach, there is a possibility they may let us release it into our capital, perhaps within this year or next. While I can't make any guarantees, I sincerely hope we can achieve this within the next 3 to 6 months. The only commitment I can make is that we are diligently working to demonstrate that this amount exceeds requirements and should be included in our capital adequacy.

Operator, Operator

We believe that if we present a strong case to our regulator and feel confident in our approach, they might permit us to release it into capital, potentially this year or next. However, I'm uncertain about the timeline. I hope to achieve this in the next three to six months, but I won’t make any promises. The only assurance I can give you is that we are diligently working to demonstrate that this amount is excessive and should be included in our capital adequacy.

Hisham Ezz Al-Arab, CEO

I expect someone to ask me about Yasmine's package. So no one has been asking about this, but you are the one who started this. That's going to be the talk of the town.

Operator, Operator

We actually have a question on cost of risk. So following the new ECL model, what are the expected cost of risk levels going forward, and should we expect any further provision reversals?

Yasmine Hemeda, Head of Investor Relations

For a more normalized run rate for cost of risk, as we previously guided, it will be between 0.5% and 0.7% per year. This translates to total amounts between EGP 1.5 billion and EGP 2 billion, including both direct and contingent. As Mr. CEO has mentioned, we are continually reviewing the newly recalibrated model to evaluate its accuracy and adequacy, and to determine if it truly reflects the asset quality of the portfolio and the operational environment. If necessary, we will make reversals. If not, the run rate will be between 0.4% and 0.7%. However, you should not expect any reversals of the same magnitude as the EGP 13.1 billion.

Operator, Operator

Thank you. There is also another question on margins. So can you please detail the latest NIM sensitivity to interest rate cuts?

Yasmine Hemeda, Head of Investor Relations

It's difficult to provide a clear measure of the sensitivity of the net interest margins because, as Omar mentioned, there are numerous factors involved, primarily influenced by management decisions regarding asset and liability management. However, from our current perspective on costs associated with liabilities, due to the 61% CASA and the structure of our sovereign portfolio—which consists of 50% bills and 50% bonds with an average maturity of 2.5 to 2.8 years—we expect this to offer some protection against significant compressions that typically occur in a declining interest rate environment. Therefore, while we anticipate compression in the net interest margins, it will be a gradual process rather than sharp declines.

Omar El-Husseiny, Banking Executive

I may add, on the NIMs, our low-hanging fruit is the loan deposits and foreign currency, and that runs at about 32% with more opportunities and focus on the foreign currency lending. That means that we have a hedge coming from the foreign currency with very low NIM to more expandable ones. That is my low-hanging fruit on the balance sheet.

Operator, Operator

Thank you. We also have a follow-up on the NPL coverage. So should we expect NPL coverage to be in the 300% range?

Hisham Ezz Al-Arab, CEO

I will answer that. But because every time I bring it down, it goes up.

Yasmine Hemeda, Head of Investor Relations

We always emphasize that the most important metric to monitor is the coverage ratio for the performing portfolio. At its peak, this ratio reached between 14.5% and 15%, but it has now decreased to 7%. When comparing this, it's important to note that the regional average is around 4% to 5%, which puts us in a strong position. The coverage ratio is influenced by non-performing loans and various factors. The recent increase to 358% is primarily due to upgrades and reclassification of non-performing loans from Stage 3 to Stage 2.

Hisham Ezz Al-Arab, CEO

And it is a good problem to have.

Operator, Operator

That is very clear. We have another question on the CDs. So the CIB recently raised the interest rates on its 3-year fixed rate CDs offering up to 17.25% per annum in December 2025. So are these still valid? And if yes, what is the expected timeframe?

Hisham Ezz Al-Arab, CEO

We are targeting a certain balance there. And when we reach that point, we'll close the program.

Operator, Operator

We have another question on operating expenses. Why did other operating expenses decline from EGP 4.8 billion to EGP 3.7 billion?

Yasmine Hemeda, Head of Investor Relations

It's because of accruals, expense accruals.

Operator, Operator

We would pause for a moment for more questions to come in. Since there are no further questions, would management like to make any closing remarks?

Hisham Ezz Al-Arab, CEO

We'd like to thank you all for your support. And I still believe that we have a long way to go in terms of growth, market cap and maybe when I said that always my ambition is higher than what people look for. I mean a year ago, people were talking in the bank, we need to reach EGP 7.5 billion market cap. Now we are in excess of EGP 9 billion. And I think we'll carry on our market cap to be fair with you in terms of comparison to the other Africa large players like ourselves or the Middle East, our market cap should not be less than $13 billion, $14 billion, and we'll get there on time.

Nelly Zeneiny, Investor Relations Manager

Thank you, Noor. Thank you, everyone, for dialing in. Thank you so much.

Unknown Executive, Host

Thank you, management, and thank you all for attending CIB's 4Q 2025 Earnings Call hosted by CI Capital. Have a nice day.