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CIB Defies Moody’s as Egypt Yield Higher Than Spain Boosts Net

President Mohamed Mursi
Egypt’s borrowing costs have been tumbling since the June election of President Mohamed Mursi, who restarted talks with the International Monetary Fund for a $4.8 billion loan. Photographer: Jin Lee/Bloomberg

Commercial International Bank Egypt SAE, whose holdings of government debt prompted a rating cut by Moody’s Investors Service this week, almost doubled third-quarter profit after buying more of the same notes.

Net income advanced to 610 million Egyptian pounds ($100 million) from 314 million pounds a year earlier, Egypt’s biggest publicly traded lender known as CIB said late yesterday. The median estimate of five analysts was for a profit of 550 million pounds, data compiled by Bloomberg show.

The government, struggling to finance the highest budget deficit in at least five years, has increased the sales of local-currency debt to domestic banks after last year’s uprising prompted foreign investors to dump the securities. Larger holdings of sovereign debt helped boost net interest income 45 percent in the first nine months to 2.8 billion pounds, CIB said yesterday, one day after Moody’s cut its rating to B2. The junk-rated debt pays a higher yield than Spain, which is rated five levels above Egypt’s.

Higher exposure to government debt “is a risk to CIB, but the investments are in Egyptian pounds so there isn’t that risk of default,” Sara Boutros, equity analyst at Cairo-based investment bank Beltone Financial, said by phone. “The worst-case scenario is that the government will print money.”

CIB added 30 percent to its treasury-bill holdings to 13.9 billion pounds in the year to the end September, according to its financial statement. Debt instruments available for sale, including government bonds, rose 41 percent to 20.6 billion pounds.

Yields Jump

CIB’s “high degree of exposure to these securities offsets the bank’s otherwise stronger asset quality, capital buffers and risk-management compared with” its domestic peers, Moody’s said Nov. 13.

The average yield on Egypt’s one-year treasury bills has surged 240 basis points, or 2.4 percentage points, since the revolt that ousted Hosni Mubarak to 12.99 percent today, according to central bank data on Bloomberg. Spain, at the heart of the euro-zone debt crisis, pays an average yield of 2.82 percent on similar-maturity debt, data compiled by Bloomberg show.

Egypt’s borrowing costs have been tumbling since the June election of President Mohamed Mursi, who restarted talks with the International Monetary Fund for a $4.8 billion loan. The government says the loan will help restore investor confidence and lower the budget gap, which widened to 11 percent of economic output in the fiscal year that ended in June.

Revenue climbed to 1.45 billion pounds from 923 million pounds a year earlier, the lender said. The bank’s shares have more than doubled this year, outperforming the benchmark EGX 30 Index, which has advanced 56 percent.

Ten analysts have a buy rating on the stock, eight recommend a hold while two say sell, according to data compiled by Bloomberg.

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