U.S. Markets open in 1 hr 26 mins

Edited Transcript of COMI.C earnings conference call or presentation 4-Feb-20 2:00pm GMT

Q4 2019 Commercial International Bank Egypt SAE Earnings Call

Giza Feb 7, 2020 (Thomson StreetEvents) -- Edited Transcript of Commercial International Bank Egypt SAE earnings conference call or presentation Tuesday, February 4, 2020 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Hussein Abaza

Commercial International Bank -Egypt S.A.E - CEO & Director

* Yasmine Hemeda

Commercial International Bank -Egypt S.A.E - Head of IR

================================================================================

Conference Call Participants

================================================================================

* Ahmed El-Shazly

EFG Hermes Holding S.A.E., Research Division - Analyst of Banking

* Mark J. Lawrence

T. Rowe Price International Funds, Inc. - T. Rowe Price Africa & Middle East Fund - Member of Investment Advisory Committee

* Ribal Hachem

Arqaam Capital Research Offshore S.A.L. - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the CIB FY '19 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ahmed El-Shazly. Please go ahead, sir.

--------------------------------------------------------------------------------

Ahmed El-Shazly, EFG Hermes Holding S.A.E., Research Division - Analyst of Banking [2]

--------------------------------------------------------------------------------

Thank you. Good afternoon, and good morning, everyone, and welcome to the CIB Full Year 2019 Results Conference Call. A pleasure to have with us on the call today, Mr. Hussein Abaza, Chief Executive Officer of CIB; Mr. Sherif Khalil, Chief Communications Officer; Ms. Yasmine Hemeda, Head of Investor Relations; and Ms. Nelly El Zeneiny, Investor Relations Officer.

I'd like to hand over the call now to Yasmine Hemeda.

--------------------------------------------------------------------------------

Yasmine Hemeda, Commercial International Bank -Egypt S.A.E - Head of IR [3]

--------------------------------------------------------------------------------

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 conference 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 and 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, therefore, undertakes no obligation to republish, revise forward-looking statements to reflect changed events or circumstances. And that ends the disclaimer statement.

I'll now hand over the call to Mr. Abaza to give a brief presentation on the full year 2019 financial results.

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [4]

--------------------------------------------------------------------------------

Good afternoon, and good morning, everybody. Thank you for calling in.

I think numbers came pretty much in line with guidance, and I think, with market expectations. So to recap on the year, it was definitely a year where we saw a lot of macroeconomic improvement. We finally got 450 basis point interest rate cuts. The Egyptian pound strengthened considerably against the U.S. dollar. Inflation has come down. So I think the climate is getting better and better for loan growth. And we actually see pretty good loan growth numbers, especially in Q4.

So I think we also as CIB, if you recall, have been extending duration of our assets by buying bonds and shortening duration of liabilities and controlling our costs. And that resulted in the ability to actually widen NIMs at the time when interest rates are falling, which is usually the dropping interest rates have a negative effect on NIMs. This is not a permanent thing, but it's a very good temporary measure to sort of preempt against that stage where yields are falling on your assets and still corporate lending picks up. So in a sense, I think the year went pretty much according to plan.

Bottom line recorded EGP 11.8 billion, up 20 -- 20% -- 23% year-on-year. Loans -- local currency loans recorded 20% growth. Q4 local currency loans recorded 6% on a stand-alone. Foreign currency loans, in dollar terms, recorded 11% growth. Due to the revaluation, it showed a drop. The last quarter alone, there was 9% growth for the foreign currency loans. And as a result of all this, I think, our ROE rose to 29.5%, with the cost-to-income of around below 22%. Other than that, I don't think there were any surprises on the balance sheet.

So I think I'd like to open it up for Q&A, if you like.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We will take our first question from [Caitlyn Burn] with Prudential.

--------------------------------------------------------------------------------

Unidentified Analyst, [2]

--------------------------------------------------------------------------------

I've just got a few questions. So one is on your NIM expansion in Q4. And how much of that very good NIM is due to shifting the duration? And how much is due to the sort of FX rate differential between the average rate for the quarter and the end rate of the year?

My next question is just on the noninterest revenue. So it seemed like the loan growth was very good, but the noninterest revenue hasn't seemed to come through to the same extent, especially, on the credit-related fee income, which was down 14%. And then just on the deposit side, the time deposits sort of increased more than other categories at around 10%. So just wondering why the -- that is increasing more than the sort of lower-cost deposits?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [3]

--------------------------------------------------------------------------------

Thank you. Let's start with the first one.

I think if you (inaudible) Hello? Yes. Sorry, there was a bit of interference on the line.

Regarding the NIM expansion. When I was referring to the NIM expansion due to the maturities, let's look at each individual currency NIM. If you look at the blended NIM, then you might get a bit of difference. But if you look at the local currency NIM, the local currency NIM expanded by, if I'm not mistaken -- let me check my numbers right. Local currency expanded by 31 bps to get to 830 bps. So that is all entirely to -- due to the maturity -- the playing around with maturities because any change in the foreign currency -- came on the foreign currency NIM, which also expanded.

However, the foreign currency was managed due to -- basically, we shed some of our expensive deposits, and we booked a lot of loans in foreign currency. So our loan-to-deposit ratio in foreign currencies is actually -- is above 62%. And that, I think -- for foreign currency, that's -- we can't afford it to drop below 60% because if we do, all the excess funds we have, are invested at very minimal profits. So they have a downward drag on NIM. So the main thing with foreign currency is to maintain a high loan-to-deposit ratio. It's an asset-driven strategy. On the liability side, it's the opposite. Excess funding, as long as you bring in cheap funds, you tend to be able to invest them very profitably, even if you can't lend them out. So I hope that answers the NIM question.

On the noninterest income revenue, we saw a shift generally in the market. It's not just us, all of the other banks. There is more and more -- the most active companies seem to be the multinationals, and they are using -- they're not using letters of credit to import. They're either doing it through open accounts or through IDCs, which require -- which do not require bank guarantees of payment. So effectively, the banks are able -- are not able to charge as much for their services. And that is why I think across the board, both us and most of our peers, you will see noninterest income either decreasing or increasing at very low rates.

Finally, regarding the funding on the deposit side. I think there's a blend of growth, especially, in the local currency, both on TDs and in the CASA accounts. It's just because we prefer to have CASA, but the market is now paying more and more or requesting more and more for the deposits. What we're trying not to get into is the CDs because it is not -- I mean the amount of effort required to get money is pretty much the same in both, but the return on TDs and CASA is much higher, obviously.

--------------------------------------------------------------------------------

Unidentified Analyst, [4]

--------------------------------------------------------------------------------

Actually, could you -- would you mind just expanding on the noninterest revenue for your sort of strategy going forward. Do you see that as a potential headwind for the coming few years? Or it's just more difficult to generate that noninterest revenue? And on the deposit side, is competition increasing for deposits in the market generally?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [5]

--------------------------------------------------------------------------------

Okay. Let's start with the noninterest. With the noninterest income, moving forward, if we see the CapEx lending come through, CapEx lending has its own set of noninterest income fees and commissions that are unique because if you look at -- as I said, if we're looking at the multinational importing raw materials from the mother company then the mother company does not require a guarantee of payment from the bank. However, if the same multinational were to do CapEx then basically, it is importing a machine. That machine is usually imported from the manufacturer of the machine, who would require a bank guarantee of payments. So in that case, we will be importing it through a letter of credit. Where letter of credits are concerned, banks charge a lot more because they are guaranteeing payments, not just making sure that the documents match. So definitely, if CapEx comes through then we're looking at much higher levels of noninterest income. And we also then -- the -- there are other charges related to medium-term loans, arrangement fees and commitment fees that are standard in the markets that are not part of working capital facilities. So yes, moving forward, when and if CapEx comes through, we do expect to see a surge in noninterest income.

Regarding the market, we are seeing in certain types of funding. So for example, the public sector banks are paying a lot higher than the private sector banks for CDs. And I don't think a lot of the private sector banks are not matching them in the pricing. So there is competition, of course, for funding. However, looking at Egypt as a total market, you have -- I think there's about EGP 4 trillion inside the banking system, and there is certainly a lot more outside the banking system. So there is a very high pool of liquidity. It's very much a cash-based society, and it is one of the main challenges and goals of the government to get financial inclusion in. So I think there's a big drive to access this massive pool of liquidity. But at the moment, yes, there is competition for deposits, definitely.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Ahmed El-Shazly, EFG Hermes Holding S.A.E., Research Division - Analyst of Banking [7]

--------------------------------------------------------------------------------

I have a question -- I'm Ahmed El-Shazly from EFG. I just wanted to ask about the NPL ratio. It dropped from 5.3% in last quarter to 4%. So is this related to a specific account or just a number of different accounts? And also if you could give us your expectations for asset quality going forward?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [8]

--------------------------------------------------------------------------------

Sure. I think we're already meeting with a lot of the analysts. We've been saying that we're starting to write down not a lot, but some accounts that have been on the books for a while. One of the reasons we weren't tracking down was because for legal reasons. Taking companies to court, it was better for us to go to court and not have the account written-off. Now it does not make any difference going to court. Whether it's written-off or not, it's understood in court that if it's still an outstanding then that is due to the bank. So it's no longer harmful for us to start writing down. So you will be seeing some write downs. And this is not 1 large account, it's small accounts that have been on the books for ages, and they're 100% provided against. That's why there was no P&L impact. It just makes the bank look -- because having an NPL ratio of 5% is not reflective of business. The NPL ratio of 5%. There are some accounts that have been with us since the '80s. So it's almost like a buildup of all your NPLs since inception.

So I think to make it look more realistic, it's better to sort of write down accounts. We will -- we'll continue to monitor these accounts, even if they're written off. We have a special department that continues monitoring and following up and taking legal action. So it will not affect the performance, but it rather gives a more realistic view of the bank and the assets. Moving forward, if -- we're looking at primarily a corporate bank. CIB is primarily a corporate bank. The bulk of our borrowers are the larger corporates and multinationals. If we continue to see the macroeconomic improvement we've been seeing, where we don't see massive devaluation, we see interest rates come down. We see purchasing power starting to recover. I'm not saying it's fully recovered, but definitely starting to recover. We see certain initiatives from the Central Bank to promote business and get business moving. Inflation is controlled. Definitely, these all seem to point to -- the tourism is recovering as a sector. These all seem to point to a much more benign operating environment, which would -- logically, you would expect to see better financial performance from companies, and theoretically, better asset quality.

--------------------------------------------------------------------------------

Ahmed El-Shazly, EFG Hermes Holding S.A.E., Research Division - Analyst of Banking [9]

--------------------------------------------------------------------------------

Okay. I just have another question on the loan growth. Should there be CapEx recovery in, let's say, the second half of this year, or maybe in '21, are you seeing specific factors that will drive this growth?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [10]

--------------------------------------------------------------------------------

Not specific sectors, but rather we're tending to see the recovery coming in top down. So to -- the A Class recovering more than the B Class or quicker than the B Class. In general, I think, if you look at the entire population, A, B, C and D, I think, everybody is better off than they were a year ago. But probably the A Class, I would say, have almost come back, if not already come back to [pre deval] levels in terms of purchasing power. So companies that are selling more to the A Class, rather than the C and D, would probably be seeing stronger sales levels and sales volumes levels. And these are where we expect to see more willingness to invest because they're probably seeing stronger sales levels. If they haven't done CapEx recently, then they'll probably be seeing high levels of capacity utilization. So it's not sector-specific, it's more about company-specific.

There are several factors. I don't think interest rates are now the most important factor. It's one of the number because we've already seen 450 basis points come down and 200 basis points, the year before. So we see 650 basis points come down. We won't be expecting to see of more. It's a combination of that. The fact that the Egyptian pound is quite strong against the dollar and any CapEx being done is being done so effectively, you want to import the machine from abroad, which will cost you $20 million. So you're borrowing the money in Egyptian pounds. You're borrowing less today than you would if the Egyptian pound weakens in 1 year or 2. So that is, again, another factor.

It depends on how long that particular company has not had CapEx and how efficient the machines are. Is there something causing the bottleneck? Is there technological advances that have made the replacement of 1 machine at pretty low cost give massive benefits? There are certain industries where we've seen this. And finally and most importantly, is the purchasing power of your consumers. As your particular customer base, have they started to buy? And where are you in terms of capacity utilization? So I think it's more about answering these questions rather than saying -- because I don't think there's a shortage in any particular sector, where -- or sudden demand. It's basically individual companies answering these questions and deciding to move ahead and do their CapEx.

Operator, do we have any more questions?

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Yes. We'll take our next question from Ribal Hachem with Arqaam Capital.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [12]

--------------------------------------------------------------------------------

Congrats on the numbers. I have some few questions. If you look at Q4, we actually like witnessed a rebound in loan in the corporate segment. Basically, it was driven by direct loans, extended the manufacturing sector. This refers to basically CapEx. Is CapEx actually (inaudible) ? Or can you shed some color on it?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [13]

--------------------------------------------------------------------------------

Most of it is not CapEx, it's still working capital because very few companies, even if they intend to do CapEx, will do it in the last month or 2 of the year. Most companies prefer to include it in the following year's budget, start it early. So they finish it off by year-end. It doesn't drag into a second year if the option is there. So most of it was working capital. It was spurred by, as I said, the dollar's stability or the Egyptian pound's strengthening and the interest rate cuts that mostly happened towards the second half of the year. So it made it worthwhile for the companies to do that.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [14]

--------------------------------------------------------------------------------

I see. So if you look at the cost of risk, basically, I know the bank has a conservative provisioning approach. And so -- but the COR has actually dropped on loan provisioning this year, much more than previous year. So what should we expect...

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [15]

--------------------------------------------------------------------------------

Just a second, last year, there was an excess of EGP 1.8 billion. If you discount that, this was -- we had -- it was an accounting entry. If you remember, last year, guys, we had EGP 1.8 billion that came in, in our net interest income and were taken out of our provision. It was a reversal of accounting that have changed according to the Central Bank. It was a way of recognizing unearned income that the Central bank wanted us to change. So what they wanted us to do was increase our interest income with EGP 1.8 billion at the top, and take it out as a provision of EGP 1.8 billion. So if you take out both numbers, our cost of risk has not actually gone down, it's gone up. Remember that we did this last year, and we kept talking about it all the way through. For us, this has been leveled out. And now, if you remove the EGP 1.8 billion from last year's income and provision, then you're talking apples-to-apples.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [16]

--------------------------------------------------------------------------------

Okay, I see. Regarding dividends, can you offer some -- basically, some expectation about dividends? Or will you maintain the same level? What are you looking regarding dividend payment?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [17]

--------------------------------------------------------------------------------

I think, we...

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [18]

--------------------------------------------------------------------------------

Did you announce dividends, really?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [19]

--------------------------------------------------------------------------------

Yes, we announced it's going to be EGP 1.25 per share and a free share dividend for every 3 shares.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [20]

--------------------------------------------------------------------------------

Can you please repeat (inaudible)?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [21]

--------------------------------------------------------------------------------

Sure. It's a proposal that has to be approved by the AGM, on the 15th of March. But the proposal is EGP 1.25 per share, up from EGP 1 last year, and a share dividend of 1 share for every 3.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [22]

--------------------------------------------------------------------------------

Okay, I see. And last question. So are you looking into any expansion to other countries? Are you basically planning any acquisitions? Anything you're planning to do?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [23]

--------------------------------------------------------------------------------

We have been talking -- we're finalizing (foreign language) an expansion into Kenya. I think the market pretty much knows about it. We're looking to buy 51% of a bank there. All of the money will be coming in in the form of a capital increase. Only 1% of the funds will be taken out. And we've already gotten the Central Bank of Egypt approval. The money has been transferred to Nairobi, and we're pending the Central Bank of Kenya approval. Once that is done, it could happen anytime in the next 2 days, 2 weeks, 2 months.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

(Operator Instructions) We'll take our next question from Mark Lawrence with T. Rowe Price.

--------------------------------------------------------------------------------

Mark J. Lawrence, T. Rowe Price International Funds, Inc. - T. Rowe Price Africa & Middle East Fund - Member of Investment Advisory Committee [25]

--------------------------------------------------------------------------------

Hussein, just a quick one. Were you going to give 2020 loan guidance at this stage? Or we still waiting? And sort of adding to that question, what are the range of outcomes in your mind in terms of normal CapEx growth demand, strong? And then maybe none, nothing have materializes? Is 2020 going to look like 2019, pulling in deposits, playing the same sort of rate curve strategy? Or do you think something will have to change?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [26]

--------------------------------------------------------------------------------

Okay. So first of all, great to hear your voice, Mark. And definitely, we'll give loan guidance. Since you're the one who asked us, I'll give anything you want.

Let's start with our loan guidance. Seriously, I think we're expecting the start of the CapEx cycle. And I say the start because I think we spoke about this once or twice, me and you. It tends to start with the lightest form of CapEx in the sense that companies will, first, start with replacing machines on the line that are causing problems, or as I said, where technological advances, of course, the machine to become much more efficient by buying a new one.

So that is the lightest form of CapEx, but now we're actually seeing demand from several corporates we had, who a year ago when we approached to talk about CapEx, were refusing to give us numbers. 4, 5 months ago, they were coming out with very accurate numbers as to what they needed, how much it would cost them, the impact on sales, the impact on costs. So what -- we were able then to go out and get soft approvals. So the in principle approvals for all of these companies. For us, this is great because our turnaround time in certain cases can be quite tedious. We ask a lot of questions, we go -- there's a lot of back and forth. So we thought we reduce that time until, either interest rates came down to the proper levels or the new year came down -- the new budget cycle came around, we actually managed to -- we now have in place more than EGP 10 billion of -- in principle approvals for the companies, which we expect to see withdrawn starting Q1 and going into Q2.

So I expect to see the CapEx cycle start. On the back of that, we're talking about loan growth on the local currency side of 20% to 25%. And on the foreign currency side, 10% to 15%.

So gives you blended whatever. As a Plan B, from where we're sitting, we see 1 of 2 possible outcomes: either the CapEx cycle will take off and on the basis of that, you'll see economic growth, you'll see GDP growth coming in; or for some reason, which we think is a much less likely scenario, if this does not happen, then the downside will be we will not have the economic growth, and you might start seeing [federal] rates starting to come up.

In either case, the most critical factor for us is getting hold of as cheaper possible local currency deposits. Lending comes through, that's great. Lending comes through, that's the best thing we can see, especially, CapEx lending because the fees and commissions are much higher. NIMs will see slight compression with the lending, higher fees and commissions compensated and a more favorable tax rate on your bottom line.

So effectively, you get stronger profits. If it doesn't come through, then effectively, we go back to doing what we did on the years, where the loan growth wasn't there. Taking cheap deposits, maximize the yields as much as possible if there's something that can be benefited from maturities, either playing the curve. So either way, we're ready for whatever comes. However, we strongly feel that the CapEx will come through, but we always have to have a Plan B and C.

--------------------------------------------------------------------------------

Mark J. Lawrence, T. Rowe Price International Funds, Inc. - T. Rowe Price Africa & Middle East Fund - Member of Investment Advisory Committee [27]

--------------------------------------------------------------------------------

That's very clear. And can I just -- one other topic. The banking act that keeps ruminating around. They put out a press release. It seems to get watered down a little bit. Where are we today? And what do you think the direction of travel is in terms of taxes or regulated capital that the regulators are trying to impose?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [28]

--------------------------------------------------------------------------------

I think the one thing that will be done is they will raise the minimum level of capital required from $50 million to $500 million over 3 years, which I think is pretty healthy. 39 banks in Egypt, a lot of them with the minimum capital requirements. It might be a great opportunity for a lot of these banks to merge. I don't think it will cause massive strain because most of the smaller banks in Egypt, as we call them, happen to be subsidiaries or owned by huge global banks. So I think it's sort of a matter of if you want to stay, then you really have to put some money in. If you don't, then you might as well either sell out or merge. It'll be a gradual process.

I'm sure some banks will need to actually put in money to stay. In terms of -- other than that, I don't think we're seeing anything on the taxes. Nothing seriously that we think is detrimental. It's more about governance, about having the proper committees in place, who reports to whom, what sort of reporting lines. We've gone through it several times, and we don't see anything that would worry us or worry you guys as investors.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

And over to our next question from [John Munch] with [Virgin Asset Management].

--------------------------------------------------------------------------------

Unidentified Analyst, [30]

--------------------------------------------------------------------------------

I just have a quick one regarding your acquisition in Kenya. Could you kindly briefly speak about the rationale behind making this acquisition? Why this particular asset? And what will be the strategy there going forward?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [31]

--------------------------------------------------------------------------------

Sure. I think recently we've seen a lot of interest and a lot of political leaning in Egypt towards Africa. But from where we're sitting, we're seeing massive business opportunities. There is The Commercial Agreement and there is the African Free Trade Agreement which gives a lot of advantages to trade between African countries.

Kenya is seen as a perfect starting point because of its proximity to East Africa. It was part of The Commercial Agreement, so we don't pay customs. It's now part of the African Free Trade Agreement. So again, we don't pay customs. There are a lot of Egyptian companies who have started to export into Kenya. Kenya has one of the most efficient commercial ports, in Mombasa. And Kenya, Uganda -- basically most goods going into Uganda are shipped through Kenya first. So you're not just picking 1 box, you're picking 2 countries. Rwanda is also there, Tanzania is there, and the trade between these 4 countries is very strong. So the model is based basically on a few Egyptian -- or we have a bunch of Egyptian exporters, who basically we would finance in Cairo to import their raw materials, manufacture their goods, and then ship them down to Kenya through letters of credit opened through the new bank there.

The borrowers there would then take these goods from Mombasa, either sell them into Kenya or ship them out into Uganda, Tanzania and Rwanda. So it's a nice model. It works at the scale we're coming into. We're not there at the moment to compete with Barclays or Standard and Chartered, we're not there to replicate CIB in Kenya, and we're not there to invest money that we can't afford to lose.

Effectively, we're putting in $35 million, which is a good start. But if heaven forbid, worst comes to worst, it is best than the provision we take over 4 months. So it's something that we'll survive and you'll survive as shareholders with us.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

And now we'll take a follow-up question from [Caitlyn Burn] with Prudential.

--------------------------------------------------------------------------------

Unidentified Analyst, [33]

--------------------------------------------------------------------------------

I just wanted to follow up on the average duration of the government bonds that you have on your book. And as you acquire deposits and you invest them into government bonds, what sort of duration are you looking at? Are you looking at the short end? The long end, yes?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [34]

--------------------------------------------------------------------------------

Okay. At the moment, the bonds we have on our books have a duration of about 3 years -- 2 to 3 years, the average. And basically, we -- as we take in deposits, what we expect this year is, hopefully, loan growth will be at least equal to deposit growth. If this doesn't happen -- if deposit growth is higher or loan growth is lower, then excess deposits will be -- today, there is an inverted yield to us. So it is actually more profitable to go in and buy the shorter end of the -- to buy bills rather than bonds.

However, if there are opportunities to buy in bonds, a lock in yields -- good yields at reasonable rates, we probably would do that because we still expect to see yields falling during this year.

--------------------------------------------------------------------------------

Unidentified Analyst, [35]

--------------------------------------------------------------------------------

And just one question. Where do you think interest rates need to be for the CapEx growth to get going?

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [36]

--------------------------------------------------------------------------------

That's an interesting question. I think it's not where they need to be. The market is expecting 150 to 200 basis points, it's almost priced in. Most medium-term loans today are floating rate. So I think -- last year, we were looking prior to the cuts, interest rate was probably -- would influence 70% of the decision as to do CapEx. Today, I would think after the cuts and the fact that people almost are sure that it's going to happen, it is probably 20%, 25% of the decision. Much -- it's become much more important, have my consumers recovered? And if not, when are they recovering? And at what capacity utilization am I operating? So it hasn't become a -- it's no longer the trigger point for most companies, there are other factors because it's come up so much, it's become less important. So I don't think there's a particular number. I think we're pretty close, and I expect to see -- even if we don't see cuts in the next couple of months, I expect to see some companies actually going out and doing CapEx soon.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

(Operator Instructions)

And it appears there are no further questions at this time.

--------------------------------------------------------------------------------

Hussein Abaza, Commercial International Bank -Egypt S.A.E - CEO & Director [38]

--------------------------------------------------------------------------------

Yes. So if we have no more question, then I'll just -- yes, so this will conclude our call for today. Thanks, everyone, for joining. And thanks, Yasmine and CIB team, and have a good day.

--------------------------------------------------------------------------------

Yasmine Hemeda, Commercial International Bank -Egypt S.A.E - Head of IR [39]

--------------------------------------------------------------------------------

Thank you. Bye-bye.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

This concludes today's call. Thank you for your participation. You may now disconnect.