Earnings Call: Q2 2024

Jul 22, 2024

Summary

Revenue rose 81% YoY and net income 96%, with gross NIM at 9.52% and ROE at 52.5%. FY local-currency loan growth guidance is 25%-30%, while NIMs are expected to remain stable or edge higher.

Good afternoon, and welcome to CIB's 2Q 2024 earnings call. Thank you for dialing in. This is Sherif Raett from CI Capital research team, and we are happy to be hosting today's call. For management, we have with us Mr. Hussein Abaza, CEO and Managing Director, Mr. Amr El-Ganainy, Deputy CEO and Managing Director, Ms. Yasmine Hemeda, Head of Investor Relations, and Mr. Ezzy, Investor Relations Manager. We will start off with a summary of 2Q 2024 performance, and then we will open the floor for questions. I will now hand over the call to management. Thank you, Sherif. I'll now read the disclaimer statement. Good morning and good afternoon, everyone. This is our customary disclosure statement. This earnings call is intended for analysts and investors only. If any media have accidentally 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 climate of Egypt, the Middle East, and changes in business strategy, along with various other 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. That ends the disclaimer statement. I'll now hand it over to Mr. Hussein Abaza to give a brief overview on the financial results. Thank you, Yasmin. Thank you very much. Good morning, good afternoon, everyone. Thank you for joining. Probably some of you know, I've been doing these investor relations calls for over 20 years now. To be honest, I've never seen a better set of numbers, not just in terms of absolute numbers or quantum changes or percentage changes. I think this is not one quarter or one half. This is the culmination of maybe 8 to 10 years of refining and perfecting a strategy that we've put in place. So on the one hand, we've been looking at ways of cutting down costs, focusing on the main cost item, which is interest expense, getting cheap pools of funding, getting short-term flexible funding that we can use in order to maneuver on the asset side. On the other hand, it was more a matter of instilling a very, very strong risk culture, which enabled us through the last 14 years where we had a pandemic, where we had Arab Spring, where we had idiosyncratic problems at CIB level, to maintain the credit quality that allowed us to have probably one of the lowest NPL ratios and the highest coverages in the market, and maintain levels of CASA well above the market norms. All of this, we also anticipated as much as possible as a team, interest rate movements, both on the policy side and on the sovereign side, and having the funding and the ability and flexibility to move within CBE deposit auctions between different tenors on the bills and bonds and lending, as required. In addition, if you look at the non-interest income, you'll see massive jumps. All of this is not the result of one quarter or a devaluation or 900 basis point interest rate hikes. It's the result of building a huge balance sheet geared towards the macroeconomic environment and a shifting macroeconomic environment, and gives us the flexibility to move. Having built all this up, let me walk you through the numbers, which I'm sure you've seen. Revenues are up 81% year-on-year. Net income is up 96%. If you look at deposit growth, on the local currency side, we're up 11%, and on loans local currency, we're up 14%. In addition, we also managed to expand NIMs. On the local currency, NIMs are up to 12.5%. All of these are record numbers. We've never seen these numbers, and they've grown exponentially. Our gross NIM for the bank is 9.52%. Despite the loan growth, despite whatever macroeconomic challenges we've seen, despite all of this, our non-performing loans dropped to 4%, and more importantly, our coverage reached 12.8% of our gross loans. It also reached 18.5% of our unsecured loans. So we took out our fully secured loans because fully secured loans we don't calculate a provision against. If you remove the fully secured loans and you remove the non-performing loans and 100% provision against them, what you're left with is your performing risky portfolio, which in most places should be around 4% coverage, 5% coverage. Currently, we're at 14.3% coverage. CAR went up to 26.2%, and despite that, we managed to record ROE of 52.5%. I think, again, in 20 years, I think this is probably the best set of numbers and the numbers I'm most proud of, simply because none of it is a one-off. None of it is the result of anything. It's the result of six, seven years of putting in place a strategy, deploying it, and having everybody in the bank working along the same lines. I think with that, I'll sit back and listen to your questions and let's see. Thank you, Hussein. We will now open the floor for questions. If you have a question, you can type it in the Q&A box or tap the raise hand button and I will unmute your line. We have a question from Rahul Bajaj. Rahul, your line is now open. Please go ahead. Hello. Hi, Hussein. This is Rahul Bajaj from Citi. Thanks for taking my question. I actually joined slightly late, so I'm not sure if you addressed them already in your initial comment, but I'll anyways ask the question. I have 3 questions basically. The first one is on loan pricing or asset repricing. Just wanted to understand, the last interest rate hike, which happened in the middle of March, is the loan repricing fully done or are there elements of loan which are yet to reprice? Similarly, if we expect no change in interest rates for the next 6-9 months, does that mean margins will remain pretty much flat, or you expect margins to go up from here on as well, if loan pricing is largely done? That's my first question. My second question is on the provisioning line. We've seen much lower provisioning in 2Q specifically. Just wanted to understand. I recall you were trying to discuss with the Central Bank of Egypt around new inputs for your provisioning model and kind of revisiting the provisioning model. So has that been approved? Where are we in that process? Is this kind of new 2Q 2024 level of provisioning the new level we should be baking in the future for CIB? That's my second question. My third and final question is on the fee income. We see a very sharp jump in fee income in the second quarter. Just wanted to understand what is driving this and are there elements which are one-off in nature here? Thank you. Those are my questions. Good. Thank you very much for all 3 questions. Okay, let's start with our asset repricing. Most of the loan repricing happens immediately after the hike because most of our loans are priced at the mid corridor plus X. So the mid corridor jumped to 27.75, most of the loans. In some cases, you will find prime customers who will sit down and negotiate and pay less than that. However, we make sure that the total relationship, it becomes a function of how much he's using the facility, how much fees and commissions we're making out of him, the risk rating, the return on risk capital employed. So by and large, most of our repricing has been done. However, will NIM stay constant for the coming period? I don't think so, because some of the incremental NIM increase will come on the sovereign yield side. As you know, there are 2 main interest rates in Egypt. One is the policy rate. Policy rate, actually, you're saying it will stay constant 6-9 months. A lot of reports are coming in that they're expecting it to come down, but that has an effect on both the asset and liability sides. What impacts the bank as much, and maybe even more, is on the sovereign side. Because any increases on the sovereign just give us increases in our net income straight away. There's no corresponding increase on the cost side. So what we've seen on the T-bills over the last maybe month or 3 weeks, we've seen about 50 basis point increases on the 3, 6, and 9-month durations. Personally, I think we're going to see a bit more moving forward, and it always takes 3-4 months for that to feed into our stock of treasuries, because that's the average duration. If we've seen 50 basis point hikes in treasuries a month ago, within 3 and a half months, this will feed into our own T-bill book. If anything, we're going to see mild growth in our NIM for the coming period. In terms of provisions, we still haven't gotten the new ECL model. What you're seeing is according to the old model, according to the old macroeconomic requirements, this is what was needed for this quarter. Hopefully, once we bring in the new ECL model, then we'll probably need even less, because the coverage numbers that I was talking about, the 12.8% of gross loans, 18.4% of the risky portfolio, and 14.3% of the performing unsecured portfolio, I think are extremely strong, especially in light of the asset quality performance. Because you can have very strong provisions, but your asset quality is deteriorating like crazy and it's not enough. But given both, I think that it's a very fair way of looking at it. Whether or not we do get the approval from the Central Bank this quarter or the next, there is still room to look at our provisioning even further. I hope I answered your questions. There was a third question on fee income, Hussein. Okay. There wasn't any one-off item. However, if you remember a year ago, there were no dollars available at all. A lot of our fee income is generated from not just selling dollars to customers, it's opening letters of credit for them to import. We used to charge the normal fee without any concessions is 1 and a quarter percent per quarter. You're talking from a level a year ago when we were selling $3 million-$4 million a day to customers, to today when we're selling between $20 million-$40 million a day to customers. A tenfold increase. The bulk of these are then used to open letters of credit. That would explain the big jump. There are no one-offs there. Sir, all clear. Thank you. Thank you. Thank you. We have a question from Curtis. Curtis, your line is now open. Please go ahead. Hi there. Can you hear me? Yes, we can hear you. Yeah, we can hear you. Okay, great. Thank you so much for making the time, and a big congrats on an excellent set of results. My question is just around, obviously right now the bank is benefiting from a very high interest rate environment and seeing record numbers. My question is just as the interest rate environment starts to normalize and if we see a return of loan demand, and obviously see a lot of loan origination fees, et cetera, come through, my question is on a return on assets level, would we see the fees keep the return on assets at the same level, or would perhaps see it perhaps even go even higher? Would it be lower? I'm just trying to get an understanding of that run rate as the environment normalizes. Sure. We are looking at return on average assets to be at 6%, which is remarkably high. However, we are looking at return on equity of 50%. What will happen once loan demand returns, right? That is basically the question and the impact on fees. What you are seeing, all the loan growth you are seeing is basically local currency working capital. We are not seeing any CapEx lending come here. CapEx lending inherently has a lot more fees and commissions, and bells and whistles stuck onto it. The first thing, when you are importing raw materials, generally, it takes you one to maximum two quarters. So the letter of credit is open for one or two quarters, which is 1.25% or maybe 2.5% max. If you are importing a production line, this could take three years, and the letter of credit is open throughout that period because it is being imported in installments. That comes up to 5% a year. So 1.25% times four. So that is 5% added for taking zero risk because you are already taking the same risk with the client that he pays off the loan. So it is the same risk there. When you arrange a medium-term loan, you add on an arrangement fee. You add on an availability fee. You add on all sorts of things. So that can add on to another 4%, 5%, plus the interest rate itself is higher because of the duration. So on the one hand, you would expect to see higher fees and commissions coming in. But once the economy starts moving, we will give more and more concessions on the 1.25% on LCs. Today, because we are still coming out of a period where there was a shortage of dollars, people are paying the 1.25% per quarter. But top customers can get 50%, 60% discounts on that. And you weigh up the whole relationship. But definitely, once you start booking more loans, fees and commissions will definitely increase. And without a corresponding asset, that gives you a higher return on asset. But I would imagine 6% return on asset is a very healthy and very strong number. So I wouldn't project 8% or 9%. 5%-6% for the coming 24 months is as far out as I am willing to venture, and sort of give out a projection there. Okay, great. And then kind of also looking at a more longer-term ROA, what would you see as more of a normalized level? It's very difficult to say because the ROE is the actual final result of like 130,000 moving parts. Yeah. You're talking about interest rates, you're talking about the economy, you're talking about demand. You're talking about the most unstable region in the world for the last 3,000 years. It does sort of tell you. 4 years ago, we had a global pandemic. People in the 21st century were catching cold and dying. To look beyond 2 years, honestly, would be challenging. But to see drops, given what we've done on the balance sheet, the way we've worked our costing, the way we've worked the flexibility on the balance sheet, the fact that we're in a country that's running a twin deficit, so in a sense, we always can fall back slightly on the government borrowing at reasonably high rates. We've constantly had an issue in terms of devaluation of currency, et cetera. When you factor all this into the mix, I think it becomes paramount. The most important thing is to maintain very high liquidity levels in the bank, a very solid loan book. And that way, we should maintain ROE between 30%-35%. Consequently, we should see an ROA of 4.5%-5.5%. These are the numbers. And over the last 15 years, with the exception of when equity suddenly jumped after we moved to IFRS 9, and that had a negative result in ROE, our ROE has consistently been between 30%-35%. Now we're seeing super ROEs. But even if we go back to normal, ROE 30%-35%, ROA 4.5%-5.5%. Okay, excellent. Thanks, Suzanne. Perhaps just one last question as well. Just on the deposit side, how does that lag effect look? If we have to see rates start to drop, does deposits adjust immediately like you were saying with assets, or is there also a bit of a lag there? No, the good thing is there's a lag. First of all, if you have CDs, they're locked in for the duration of the CD. Time deposits are locked in for their duration. We did, at a certain time, issue some floating rate CDs, but the market wasn't too hot on them. Where we try to compensate slightly is on the savings, because current accounts are usually zero. For the savings accounts, we had 900 basis points increases. I think we passed on a lot less than that. I'd rather not get into the actual number itself, but it was a lot less than that, and there was a big lag. That's why banks always make a lot of money in rising interest rates. Excellent. Great. Thanks so much, Hussein. Pleasure. Thank you. Thank you, Hussein. We now have a question from Dan Smith. Dan, your line is now open. Please go ahead. Hi, Hussein. Hi, Dan. Congrats on the amazing results and all the success after, as you said, many years of hard work. It's great to see the numbers coming through. Just one question from me. Can you comment on dividend expectations and also how that relates to dollar availability? What can investors expect this year and maybe going into next? I think the most important thing for us will always be the way we look at CAR and the impact of the dividend on CAR before we look at the impact of it on dollar availability. I don't see dollar availability being an issue at the moment. Hopefully by December it will be even less of an issue, or next March. I think it's more an issue of CAR. Remember when a few years back, our CAR was at 32% and everybody was saying pay out a super dividend, which had we done that, we'd have been wiped out because suddenly we lost the bulk of that CAR once interest rates started moving, and because we have a large portfolio of bonds that are held as fair value OCI, which impact my equity every time interest rates go up. We have risk-weighted assets in dollars, which again, we do have some Tier 2 capital in dollars, but we are negatively impacted when there is a devaluation or when the Egyptian pound weakens. We will run various simulations. The good news is where the profits per month are adding on 0.7 to 0.9 to our CAR every month. All else being stable, we should be very close to 30% CAR. However, it is a CAR that is still vulnerable to certain things. It is not like an equity of a company where unless you actually make losses, it will go down. Long explanation, I think we are going to sit down, run a few scenarios, and I would generally feel we will probably want to pay out the maximum, most efficient dividend because running a bank at a 32% CAR is not efficient for us nor for you. It will be more a discussion on impact of CAR and potential scenarios than it is dollar availability as I see the market today. Got it. Okay. That is helpful. Is it fair to say or assume that your CAR at this level is less vulnerable or exposed to, obviously, interest rate increases than it was three or four years ago, as you said, when that CAR eroded, rates were low, and as they increase, you lost those non-comprehensive income gains. Is the balance sheet similarly positioned today? It is. It is slightly less in the sense that every month we become closer to maturity of the bonds that are causing these losses. In a sense, if interest rates go up a year from now, the impact will be less. In that sense, yes. We are still vulnerable to interest rate hikes because we are still holding onto this bond portfolio. If we sell it, then we realize these losses. They move out from our equity, and they hit our P&L straight away. That is why we are holding onto them, and that is why they should have been held to maturity. There were discussions at various levels, and we didn't at the time. In hindsight, we should have. Got it. Okay, excellent. Congrats again. Thanks so much. Thank you, Dan. Thank you, Hussein. We now have a question from Naresh Bilandani. Naresh, your line is now open. Please go ahead. Hi. Thank you very much. Can you hear me? Yes, of course. Good to see you. Yes. Hi, Hussein. Hi, how are you? Very good. It's been a while, and good to hear from you. Congrats on a great set of results. Hussein, just a few questions, please. One is, just keen to understand the trajectory of the NIM beyond 2024. As you may have read in our comments this morning, to a large extent, our assumptions are very much driven by where the policy direction is going to be. I am just keen to hear your thoughts on the extent of rate cuts that you are thinking of factoring in going into the next year, and how these should offer any sensitivity on the net interest margin, that would be super helpful. So one, that is my first question. Second is, if you could please also throw some light on how we should think of the effective tax rate for this year. There's been volatility in the effective tax rates between Q1 and Q2, so that kind of offers some deviation to our full-year expectation. Any guidance you can offer there, that would be great. Third is, I just wanted to get a reconfirmation. The elevated mix of exposure into interbank assets. If I take a look at the FX component, that has increased quite significantly in the second quarter. Effectively, what I'm trying to say is that the FX portion of due from banks is roughly 51% of the total, in the second quarter, compared to, say, it was in mid-20s in the past two quarters. I assume that is simply a function of the greater interbank market FX activity, after the devaluation and, of course, a pickup in the economic momentum. Unless there's anything else that is going on here, any clarification that you can offer here would be super helpful. Thank you so much. Let me take the questions. Interest and NIM, first of all, right? Yes. Then the FX- And the tax, then the interbank. Yeah. Sure. No problem. Let's start with the interest and the NIM. I think our personal, or I think the house view at the moment is that there will be a decoupling between the two interest rates in Egypt, in the sense that everybody seems to be in agreement that the policy rate is going to come down, whether it comes down 600, 800, or 1,200 basis points in the next 6, 9 or 12 months. But nobody is saying that it's going to come down by 200 basis points, and nobody is saying that it's going to go up. There seems to be a general consensus that the policy rate is coming down, it's coming down hard. In terms of that, for us, we're priced very well in terms of because it impacts costs and it impacts, sorry, assets. What is more important is on the decoupling side, what we think is going to happen is we don't see that T-bills and sovereigns are going to come down, neither as hard nor as soon, and that is where a lot of money is made, especially with the CASA side. In terms of NIMs, I would say over the next because it becomes very easy at a certain point, is once if you start feeling that, first of all, our treasuries are about 50% of the book of our total assets, so they contribute massively to profitability. At the moment, we see that interest rates are still going up on treasuries, so we're staying on the very short end, and we're putting money at the CBE deposit auction. Once we start feeling that we've pretty much gotten to the sort of peak of the interest rate cycle, that's when you start shifting into the 12-month, or if there are bonds at an equitable or at a reasonable return. So it basically guarantees your income through 2024 and 2025. Moving into 2026, I think there are too many variables. I can start off with an assumption which turns out to be wrong and everything blows up. But the main thing is keeping the flexibility on the liability side, where you can move money around on the asset side depending on the opportunities that happen, whether it's on the long term, on the sovereigns, whether we find CapEx opportunities, whether we go for the very, very short-term CBE deposit auction, T-bills at 3, 6, 9 or 12 months. So it's more a matter of moving things around than anything else. That's beyond end of 2025. In terms of the tax rate, the tax rate will remain below the 30%. I think it went up from 28.5% to 29.7%, and it remains somewhere within that. We will not be seeing the 35s and 36s because there is a lot of money in the CBE deposit auctions, and we're seeing loan growth. I don't think we're going to see beyond that level of 35, 36. In terms of the FX, it's interbank placings that we're moving around. We're still continuing to get deposit growth in dollars as confidence is coming back. A lot of people are placing dollars in Egypt, and we're seeing actually in terms of dollar to dollar, our loan book is still seeing more payoffs, so there's negative 2% growth for the year. Effectively, our loan-to-deposit ratio is dropping, and the excess cash is being placed around where we're getting the best returns at the time. Got it. Thank you very much, Hussein. This is very clear. Thanks a lot. Thank you, Hussein. Our next question comes from Aybek Islamov. Aybek, your line is now open. Please go ahead. Yes. Thank you, Sherif. Hi, Hussein. Again, congratulations with the strong set of numbers. I think I'd like to ask three questions. One is on the funding cost. I think at the beginning of the call, you mentioned that you managed your funding costs lower this quarter by reducing duration of the funding. Did I understand you correctly? Absolutely. I'll elaborate on the funding cost in the quarter. Sure, no problem. Yeah. I think the follow-up to this question is, what do you expect the funding cost to be like for the rest of the year? That's my first question. Second is operating costs. Well, they've done very well sequentially. Almost looks like there is this inflation trend in Egypt which is being discounted in your cost trends. However, I want to confirm, are there any pent-up costs which could lead to higher cost growth over the coming 12 months? I think also the third question is on the duration of your securities portfolio. I remember earlier in the year you mentioned that the government is not issuing any long-term paper. Finding duration above one year was quite difficult. What's the situation now on the duration of securities? Can you increase the duration of your securities book? That's my third question. I think the last one I would like to add, your loan loss reserve ratios, which are about 12%-13%. Given that if you think about the next three to five years, I think the asset quality trends should be quite benign, quite good. Would you say that you'll be comfortable over time reducing your loan loss reserve ratios to 5%-6% level, where they used to be pre-COVID, four, five years ago? What will be your comment here? Thank you. Thank you very much for the questions. In terms of funding costs, I think what I was trying to say is we've brought down the cost of our CDs during Q2, because if you remember, the government banks had issued CDs at the beginning of the year, and we issued expensive CDs, but we issued them with a very high threshold of EGP 3 million. Now we brought these down, and we're actually winding down on the CD side because we feel interest rates are coming down, so there's no point in taking in more and more funds and locking them in. In that sense, we've continued to bring funding costs down, and we've pushed our CASA acquisitions up, to become again, around 54%, 55%. The net impact moving forward should be lower than Q1 numbers, but will be slightly higher than last year numbers because of the CDs. That is more than offset as you're seeing NIM expansions on the T-bill side. With regard to OpEx, there are no hidden costs that we're expecting in November, December, or year-end. We sort of try, if we know that there are rent or something, then we sort of distribute the cost over the quarterly periods and the monthly periods. As long as income is coming in like this, cost to income will be well below the 20%. For the costs that we have in foreign currency or that are denominated against foreign currency, remember, we generate around 4% of 30% of the balance sheet we have in NIM is generated in foreign currency. We basically make around $20 million a month in foreign currency, and we use that money to offset any FX expenses we have. That should keep things under control. Let me move to the provisioning and then back to the duration. In terms of provisioning, we definitely would be very comfortable with around 6% rather than 12%, but because of the model and changing the model and changing, we need to go back, as I said before, to the Central Bank of Egypt. We've gone back, and they've said they've accepted the premise, but it's a matter of timing more than anything. We're hoping sometime in Q3 or Q4 that we can get this done. My guess is it might, even if we get the approval this year, it will be effective next year. Our CRO is sitting here and telling me what to say. If it turns out to be wrong, you can grab him and kill him. Other than that, on the duration side. On the duration side, the Ministry of Finance is now issuing three-year paper, but they're not in large volumes. Even if we do want to increase duration in terms of percentages, it's not a large amount, but definitely, there is that option now. But the bills and the CBE deposit auctions are much, much higher. Thank you, Hussein. Thank you, Hussein. We actually got some questions in the Q&A box. You have probably covered this topic area, but there are multiple questions in the Q&A box regarding dividends. One is specifically on the implications on dividends given the high earnings run rate, and the other on whether we should expect any changes to capital allocation going forward. How do you think about share buybacks and material dividend increases? Okay. Sorry. Banks are not allowed to do share buybacks. It's not something that we can do, and this is not a Central Bank of Egypt regulation. Apparently, it's a law. For it to change, it has to go to Parliament, so I don't see this changing anytime soon. Share buybacks, given what we're seeing, PE, we're trading at a PE of 4 or even below that. It definitely should have been a great option for us, but unfortunately, it's illegal. Dividends, as I think when Darren was asking, it'll be a function of where our CAR is at the time, our expectation of what can weaken CAR moving forward, and we will pay out the dividend that we feel would allow us to run the bank at the most efficient CAR. By most efficient, I don't mean highest, because it's not efficient to run the bank at a 32% CAR. Depending on the plans for the future, because there are things that consume CAR, if we're looking at an acquisition, I'm not saying we are, but I'm just saying these are the things that will impact the decision moving forward. It's not a decision that's based on dollar availability and what we do. It's a decision based on sound business. What do we need the capital for? If we don't need it, then we will pay it out as dividend, but there's no point in if there's a great acquisition somewhere, then that would be factored into our thinking. Is that the question or is there anything else? No, that's it. Capital allocation and share buybacks. I guess that answers the questions. Thank you, Hussein. Our next question is from Ahmed Zaiter. Ahmed, your line is now open. Please go ahead. Hi, can you hear me? Perfect. Yeah. Hi, Hussein. Alf mabrook on the- Thank you. amazing set of numbers. Thank you. Job well done over the last couple of decades. I've got two- La. I'm only 12 years old. I've known you for that long. La. Maybe half the time. I'm not sure. I've got two macro-oriented questions. First, the returns on capital that you've generated are really extraordinary, particularly in the context of Egyptian public markets and sectors in general. Are you concerned about the government looking at the sector for potential windfall taxes? The second question, maybe 6 months ago, there was some talk about potentially reprofiling some of Egypt's bilateral external credit. Does that concern you? Is that still potentially an option on the table to make the external debt profile more sustainable? What can you tell us on that front? Let me start with the tax. That is always and always has been a risk. You're looking at a sector that's very lucrative, a sector that, in the eyes of the government, is making money by buying T-bills and taking interest from the government. So it'll always be a potential. Will it happen realistically? I'm not sure. To be honest, it's way above my pay grade. I'd love to say that it'll never happen, but it's not my call, so I don't know. There are implications to it happening because if it does happen, then investors get pissed off, and investors could leave. So there is a domino. It's not a straightforward, let's tax the bank and make some money. On the renegotiation of bilateral debt, I don't know, given the money coming in from Ras El Hekma and given the new IMF deals, is there a need for it? At a certain point, there was. Now, if you owe the IMF X amount, and they've suddenly increased your facility by 2X, then effectively, you can use that money to repay the first X that you had. So, I don't see an urgent need today to refinance the installments, given the Ras El Hekma deal. But if push comes to shove, then they probably as an option, as a finance minister, as a country, you would sit down and renegotiate with the bilaterals. I'm sorry, Mishar, to decrod. I'm just telling you what logic entails because I don't have any insight on this, to be honest. Okay. No, that's clear. Maybe one follow-up question. Your comments earlier about CapEx lending really not having restarted yet. Which sectors do you think will be at the beginning of that cycle once it does begin? What are the clients that you talk to, particularly on the multinational side? Are there plans that are being envisioned about expanding capacity, for instance, in FMCG and in other kind of FDI-sensitive sectors? Well, usually you've hit the nail on the head. It's usually the multinationals, because the multinational model works in the mother company makes the bulk of the profit on the investment by selling raw materials to that investment. They don't care if the investment in it just barely breaks even. If Coca-Cola is selling the 7X formula, they're selling it with no SG&A, and they're selling it at a 50%-60% markup in USD on a weekly basis through LCs. For them, the profit comes in selling more of the 7X formula rather than waiting for the bottom line profit to come through. Same applies for pharmaceuticals where there is licensing and stuff. 99% of the CapEx will come from the multinationals, and at the moment, nobody's talking about it. Everybody's still digesting the move from 30 to 50 on the USD. What's the impact? What's the impact on purchasing power? How long is the parallel market? Is the free market or the USD market really working? Everybody's getting more and more confident every day because your worst nightmare is a lot of the companies still operating at 60% capacity. They need to get up to 80%, then buy the new machine and make sure they can buy the raw materials to maintain the old factory and the new factory. That USD availability and that efficiency of the market, but they're getting the confidence there. I think this is probably a conversation that will be had in Q4 as companies start doing their budget cycles, and the investment will happen in Q1 of next year or Q2, but it's not an investment this year. It always starts with the multinationals, FMCGs, pharmaceuticals. Okay. Crystal clear. Thanks. Thanks, Hussein. Thank you, Hussein. We have a few questions in the Q&A box also asking about guidance. Could you please share with us the guidance for loan growth, NIMs, cost of risk, and net income for the year? Also, what is the medium-term cost to income target, please? Okay. Loan growth, I think we've gotten about 14% for the first half of the year, local currency. Foreign currency is negative in foreign currency terms. We should have flat to maybe low single digits. We're seeing demand from some of the hotels, but at the same time, we're seeing a lot of payoffs from the hotels because they're having a good year, and they're paying off money that was owed when they weren't paying us back during COVID and stuff. On a net-net, we are seeing bookings, but we're seeing payoffs, and it's healthy because if they don't pay you off during COVID and they don't pay off when they're getting tourists, then they'll never pay you off. I mean, the payoffs we're not too sad about. On the local currency side, as I said, it's going to remain working capital lending. It should be between 25%-30%. It might pick up slightly, but at the moment, between 25%-30% for the full year. It was 14% for the first six months. It was 14% for the first six months, so probably, I would say between 25%-30% would be a nice number. NIMs, as I mentioned before, will be stable, slightly increasing on the local currency and the foreign currency side. Net income, I think the guidance, we started off by guiding for 40, then about 47. I would say about 50 to 54 at the moment. Somewhere in between 50 to 54, and maybe we can surprise on the upside. Definitely, if the numbers come out worse, then I won't be taking the next call. Yasmin Hemeda will be trying to explain why the numbers are not coming through. Thank you, Yassir. Now, I have a question now from Stefan Swanepoel. Stefan, your line is now open. Please go ahead. Sorry. Hi there. Congrats on the results. I just wanted to ask you a quick question, just in terms of your capital adequacy ratios. You alluded to it earlier, and you obviously said that they could be negatively impacted by losses, which is unlikely in the current environment, but also by further potential interest rate hikes, I suppose. In the absence of those two dynamics, what else could negatively impact on your CAR? Is there perhaps a sort of impairment risk that's embedded in some of those portfolios that you still need to potentially think about? Or perhaps a credit rating downgrade that could impact that. Just what other risks should one think about when you think about that capital adequacy ratio of yours? Thanks. In addition to the things you mentioned, three things. One, of course, is a country credit rating downgrade. So if we were to be downgraded down to triple C, we would lose about 480 basis points of CAR. We ran the exercise because last summer there was talks with, I think S&P did downgrade us, but the other two rating agencies, Moody's did, sorry, and the other two didn't. So that's 480 basis points there. If there's a depreciation of the currency, for every EGP 1 depreciation, or devaluation, we probably will lose something like 18 to 20 basis points. And finally, the Eurobonds. We have a Eurobond portfolio. If Eurobonds trade at a higher discount, that would impact us. But again, nothing massive. To be honest, the biggest impact is basically on local currency interest rates. The best offset at the moment is that we're generating roughly EGP 5 billion of profit every month, which adds to our CAR by about 1%, 0.9%, 0.8%, something like that. Perfect. Thank you. Thank you. Thank you. There's another question in Q&A box. Given the high profitability that the bank is experiencing and the higher NIMs, is there talks or risks of the government imposing a special banking levy or a tax similar to what we have seen in Europe or more recently in Nigeria? I think Ahmed asked this question, so we're good on this, right? Yeah, it sounds very similar to Ahmed's question, unless there's something I'm missing. No, I guess. Yeah, it's a similar question. The next question is, at what rate do you expect the base to plateau? Interesting. I think there are seven of us around the table, and each of us has a different number in mind. But, let me ask our treasurer. This is Omar. Oh. The maximum point will reach back in, as soon as the MPC hikes by the rate of 600 basis points, the maximum will reach 32.5%. This is more or less where the maximum will be. Definitely as soon as we reach 32%, 32.5%, we have lots of demands, either from local or internationals. Yep. The highest point will be 32%, 32.5%. We will see lots of demand coming in, and it will bring it down to 28%, 29%. Also 20%. There you have it. This is our Treasurer, and our CRO is very happy to agree with him. Thank you, Yassir. As a reminder, if you have a question, you can type it in the Q&A box or tap the raise hand button, and I will unmute your line. We have a question in the Q&A box. Can you clarify the FX gains and losses from foreign currency exchange transactions and from devaluation from non-trading assets and liabilities? Sure. I think this was something related to Q1, not Q2, because there wasn't much movement on the FX during Q2 from April 1st to June 30th. I think at the time we had the net result. I can elaborate further. I can't right now, but I will be able to elaborate further later. But the net result of the deval at the time was that we made EGP 114 million bottom line extra. So if you want to completely normalize for any FX impact, take out EGP 114 million from the EGP 27.5 billion that we made. But I can give further details because there was some on-balance sheet, off-balance sheet stuff, and there were taxes on them. So the net impact was EGP 114 million. I think we discussed it in the Q1 call. I can't quite recall all the details. I don't want to say something that's not correct. Fair enough. Our next question, Ahmed Zaiter probably has a follow-up call. Ahmed, your line is now open. Please go ahead. Thanks. Just a follow-up. Just on longer term inflation outlook, Hassine, please have your treasurer weigh in as well. We've seen a lot of structural changes in Egypt over the last few years, where one could argue a number of inflationary pressures are actually not cyclical but more structural, whether it's removal of subsidies, the very large devaluation we've experienced just in the last 6, 7 years. Do you expect inflation for the next 10 years to be somewhat similar to what we've seen in the last 10 years? I think inflation, CPI has averaged around 12%, 13%. Is that something that you're forecasting for the longer term as far as inflation profile, or is that a premium to what we've seen over the last decade? I'll give you my answer and then, Omar and Walid, our CRO, could weigh in, and IR team I'd be interested to hear. I personally think, roughly, over the last, and since you mentioned the 20 years or more, Ahmed, inflation has always been low double digits in Egypt. Remember, it's always 12%, 13%, 14%. I don't see this differing that much. Maybe there's another global pandemic or something will happen. But I would imagine 12%-13%, in my view, is what I would expect for the coming. We're looking 10-year average. I would say that. I don't know. I'm happy to hear everybody's views. Well, I agree. I think we will see lots of cycles, same as the past 10 years. There will be definitely during the coming couple of years, removal of subsidies will be definitely factor fueling in inflation. Part of it, money supply, definitely. We're seeing the Central Bank of Egypt controlling the money supply during the past period of time, and this will be continuing during the coming period of time. So definitely, I tend to agree that the past 10 years will be around 12%. During the coming 10 years, the average will be almost the same. Okay. Thank you. Thank you, Hassine. Since there are no further questions, would the management like to make any closing remarks? Yes, please. I'd just like a very quick closing remark. As I said before, this is seven to eight years work just showing in one quarter. It's not a quarter. I really would like to extend my thanks to all the staff who worked with us on this. Everybody. This is not management. This is everybody at CIB who put in years of work, a credit culture, a compliance culture, guys at the treasury, people at the branches, investor relations, every single person at the bank who put in work for seven to eight years to get to these numbers. I just sincerely, I don't know if this is the right forum to do it, but I really need to thank everybody at CIB over the last 10 years. Not just current staff, but past staff. Thank you. Thank you, Mr. Hassine and management, and thank you all for attending CIB's 2Q24 earnings call hosted by CI Capital. Have a nice day. Thank you.