Commercial International Bank Egypt (CIB) S.A.E. (COMI) Earnings Call Transcript & Summary

We're happy to have with us Mr. Hussein Abaza, Mr. Sherif Khalil, Ms. Yasmine Hemeda and Ms. Nelly Zeneiny. Before handing over the call to Yasmine to give us the disclaimer, I want to point out that, when we open the floor for the Q&A session after Mr. Hussein's brief presentation, you can either use the Raise Hand option you have on your screens and you can unmute your line to ask your question directly. And the other option would be to type in your questions in the Q&A section on your Webex application. Now I hand over the call to Yasmine. Yasmine, please go ahead.

Thank you, Monsef. 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 on this call consist 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 in 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 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 this over to Mr. Hussein Abaza.

Thank you. Good morning, good afternoon, everybody. Thank you for diving in. Apologies for the slightly delayed statements, and thank you for bearing with us. Our interest on -- to start, obviously, as all of you saw, financials are robust. As we promised to you, there are no holes in the bed sheet, no problems, no restatement of earnings. So I think we can hopefully put the incidents of past 6, 7 weeks behind us and move on. So let me walk you through highlights of the financials. And then as usual, I'll open it up to Q&A. Of the top, net interest income has grown by 22% year-on-year. And that is again down to the structure of the balance sheet. If you remember, what we've been doing a few years back is, we bought a lot of bonds that were very high yielding. We locked in these earnings. And consequently, it impacted NII and NIMs. NIM has also gone up. Our local currency NIM is probably at its peak, around 900, 910 basis points. We're talking September 30. Our cost-to-income is down to 20%, 20.6%. We -- because of the impact of COVID in Egypt, where certain industries were impacted much stronger than others, mainly things like tourism, exports, et cetera, and these are the industries that typically borrowed foreign currency. You'll find that our foreign currency loan growth was actually negative. In some cases, companies were able to pay off debt, but nobody had new business to generate new debt. So even though our total loan growth was only up 2%, our local currency loan growth was up 16%. And I think that is the trend for the next couple of quarters as the impact of COVID on Egypt seems to be slightly milder than the rest of the world consumption is happening. Yes, we're seeing the second wave starting, but we're still touched with relatively sort of more insulated than the rest of the world. And GDP is 70% consumption driven. So despite -- we are expecting to go through a tough quarter too, but I think it's -- because the combination of the vaccine coming through and the warm weather coming in at the beginning of spring, then I think this whole episode will be behind us. Deposit growth was 9%, 12% local currency and 3% foreign currency. Again, it was a bit tricky because at the end of March, the public sector banks issued very high-yielding CDs, 12% for 3 years, 15% for 2 years and 3% for 1-year, which effectively are loss making. So in order to protect the deposit franchise, we had to issue some, and that impacted our cost of funds, in the sense that typically, more than 50% of our total deposits are CASA. However, during this year, our acquisitions were less than 35% CASA. We were forced to issue the CDs in order to compete with the public sector banks. Thankfully, 1 month ago, the 14% and 15% CDs have been stopped by the public sector banks. And it's much easier to compete against 12% and against 14% and 15%. So our cost of funds has come down again. We're now issuing our own CDs lower than that. And there is no chance to gain CASA. So over the last month, our acquisitions back up to 50% CASA. Other than that, the other striking number could the provisioning. And we again took about EGP 1.6 billion of loan interest. More than 60%, 70% of that is due to the IFRS model and the economic indicators, which, after they were looking quite positive in Q3, started looking negative in Q4. So using the forward-looking indicators of Q4 on Q3 numbers, we decided that it would be a lot more prudent to take -- a lot more realistic to take the provisions that we took. As a result of the Central Bank audit, there were certain provisions which were required taken to the tune of around EGP 500 million, EGP 600 million for specific accounts in the tourism sector, but they were done in the form of a management overlay, because we feel that the -- we are more than adequately covered between collateral and provision and the performance of the respective companies. And this was approved by the Central Bank of Egypt. Other than that, there was not any significant financial impact as a result of the Central Bank of Egypt audit. As we've said repeatedly, the bulk of the audit was focused on the control areas. The report has been prepared and also to the Central Bank of Egypt. And we're looking forward to discussing it with them. And a lot of action plans have already been implemented, and some more action plans to be implemented after discussing with the Central Bank of Egypt. As mentioned in our press release, we're bringing in an independent consulting firm to review and look at several areas of the bank in terms of processes, whether it is in the audit and the compliance, in the risk, in the credit process itself. And we're happy to plug any gaps or improve. This is something that we usually do every 3 years. And as a result of the Central Bank audit, it would be great for us to do it. It puts us at ease. It puts the Central Bank at ease. It put you as investors at ease. And we'll see what happens. It's more about making sure that everything we're doing is as it should be. And where improvements are needed, we're happy to do them. I think other than that, as a result of the loan loss provisioning we took, our total loan loss provisioning to our total unsecured loan book -- our total loan book is north of EGP 130 billion. Our unsecured loans are almost EGP 100 billion. Our provisioning to unsecured loans is about 16%. If you add back the IFRS 9 provision, which is the difference between the provisions we had under IFRS 9 and the provisions we had prior to that, we had in excess of EGP 1.4 billion provisions. These are considered quasi reserves and their provisions. Return on equity, but you can use them as provisions. This is EGP 1.4 billion. If you add these back -- over and above the provisions we have, we have about 17% coverage of our loan book, which, I think, given the quality of the loan book, given the fact that it's the largest corporates in Egypt, we think that this is quite a correct or we see that we have a very strong decline. In addition, our capital adequacy is about 30%, 31% of our risk-weighted assets. And as such, in terms of solvency, we feel quite comfortable. I think let's just leave it at that and then open it up to your questions, if you like. Go ahead.

[Operator Instructions] So the first question would be from Aybek Islamov.

Yes. Well, I think I would like to touch base on the asset quality situation at CIB, in particular in Q3. I mean, your explanation is very helpful. You explained that you took a preemptive step and conservatively, you booked more provision. So what can we expect now in the fourth quarter? Do you see a significant change -- a material change in your macro models under IFRS 9, which imply that, for example, year-end could be easier or not? But most importantly, 2021, where do you think you're going to see bulk of your provisions? Are they going to be collective or specific?

That's a very good question. I would -- again, I've learned the hard way not predict too much what happens on provisioning. But my -- again, our train of thought in the bank, and this is echoed both by risk and by the Board, is that we still are not out of the woods in terms of the COVID situation. So I wouldn't expect Q4 to be lighter on provisions. If anything, we're going to use the same economic parameters, maybe even slightly more pessimistic as we're going into the second wave globally. So I wouldn't expect a light provisioning. If next year we start seeing, after Q1, more economic activity, especially in Egypt, as the world [ never ] comes in, this year, there was a big difference in the severity of infections between people who fell ill in February-March and people falling ill during summer. Summer infections were a lot less severe. People just stayed home for 1 week or 2. Whereas, in March and April, we were scrambling for hospital beds for patients. So if -- having said that, I think, moving forward into next year, we would expect to see a much improved climate, especially with the vaccine. And it's just a matter of time, whether by middle of the year, enough people are vaccinated to stop the spread of infection or by year-end, but anyway, it seems as if I would imagine next year is going to be a better year. I wouldn't want to predict where provisions are, but logically, from just sitting here now, without committing to anything, I would expect to hope to see a lighter provisioning year and a better economic year next year than this year.

And just one follow-on clarification, if I may. So how much of the provision expense in this quarter was driven by a specific event?

For the Central Bank, we were talking about -- of the EGP 1.6 billion, we were talking about just over 1/3 of it. Just over 1/3 of it. The Central Bank was asking about 2 specific accounts -- launching 2 specific accounts in the tourism sector. And this was the number that, if you remember, was leaked at EGP 2.6 billion that was leaked. It wasn't a demand. It was -- they were saying, look at these come back quickly with a provisioning that makes sense for these companies. And that's what we did. We did the management overlay. We did the combination of -- because in our view these are very strong performance in the tourism sector. Yes, the tourism sector itself is not doing that well. However, throughout -- historically, these companies have been with us for a long time. Every time the tourism sector has picked up, they have outperformed their peers. So in our view, we are very confident that they will be well. So what we did was, we have -- we already have an industry overlay for tourism, which we took on the vulnerable industries, which were -- a couple of building materials and tourism. So it is above what the IFRS 9 model requires. We then looked at it in a different way and said, If these companies do not do well, it's not that tourism is weak. So we don't do a [ DCM ]. It is between asset strip, there will be no tourism too. So we looked at the securities we had -- that were pledged to us, absolutely pledged, not sort of -- they're giving you the right to mortgage. The ones that are mortgaged and we did a massive stripping exercise, so it's -- little haircuts on each asset class. So we take only 20% of receivables, 40% of this, or 50% of that, and you come out with an asset valuation. That asset valuation is 20% as an illiquidity premium. That is the typical way that when we get evaluated, it was approved by the Central Bank itself. We then took this amount and took 50% of it before the cut. Then we assume that, that value we will get after 5 years, not due -- not over by, so we discounted that further. And then we saw the outstanding amounts, minus the overlay we had, minus the collateral, and we took the extra provision. So it was based on a certain exercise. And other than that was less than EGP 500 million to EGP 600 million. Other than that, the rest were general provisions.

We have some questions in the Q&A section. So the first is related to the impact on financials on the back of the CBE's inspection report. I think you answered this question. The second would be, how do you see the outlook for cost of risks and ROE for the fourth quarter of 2020 and 2021?

Fourth quarter of 2020 the impact of risk is, again, provisions, right? So I think, as I said, I don't think we'll go light on provisions in Q4. And I don't think we'll have as many -- as much provisioning in 2021, but I can't get into specific numbers, because I really don't know. I made this mistake a couple of months ago, and I'm living to regret it here. I'm not going to commit. But definitely, there is no reason for us logically to go light in Q4 as the second wave is only increasing in January, February will not look good. And 2021 looks -- it is going to be a better overall year than 2020. So it would make sense to have less provisioning than we took in 2020. But other than that, I think, as we get further into the year, we will let you know.

And any color on the expected ROE with the third quarter of the year, whether that leads into 2021?

Yes. I think the ROE will probably be close to the ROE that you see now, which is high teens, low 20s because of 2 things. The high provisioning we're taking, which is hitting earnings and the very high equity levels at 31% of core. How -- when this happened in the last year after the IFRS move -- the move to IFRS, our equity grew very strongly. So it will be in the sort of high teens 20, roughly.

The next question will be on the FX percent of the loans and deposits. What's the current contribution from the FX in terms of loans and deposits?

It's -- they're less than 30-something percent of the balance sheet and their contribution to profit is even less because, the net interest margin in foreign currency is much lower. It's about 1.5%. Two reasons. One, in foreign currency, the issue is, you don't have anywhere to park money that you're not lending out profitably. So you have to maintain a very high loan-to-deposit ratio to remain profitable. And no matter how high you go, it's going to be 2%. You're basically lend 2% to 3% above LIBOR on average. So your NIM will never go above 2%. It's local currency, it's where there's a huge difference. As I said, the minimum local currency is about 900 basis points. So the bulk of our profitability is obviously made from local currency, both in terms of volume and in terms of profitability for pound depositors.

And what about your outlook for loan growth over the coming period?

Yes, I think we're still going to see working capital loan growth. Again, the bulk of it would be local currency because the industries that are most affected by COVID are those who are either exports, maybe oil and gas or tourism. So there, demand correlating in their activity levels -- they are going to be weaker. We still see working capital growth. The percentage of growth over the next 4, 5 months will be a reflection of the severity of the second wave in Egypt. And it really is the -- if there are lockdowns or curfews, it impacts the economy very, very badly. If schools shut down, if that happens, then we will see. But other than that, and I don't think this will happen, I think people are being more careful. Last year, when COVID first came, people didn't know what to do. Now a lot of people wearing masks. People are washing their hands. So I would expect to see a sort of 60%, 70% capacity utilization level in most companies, which means some working capital cost until spring. And spring is when the two things happen simultaneously. We have had 4, 5 months of vaccinations and -- so that sort of catches up globally. And warm weather coming in, and I expect that to see, by year-end, solid economic growth. And I don't know, if the [ legendary ] CapEx, if it's going to come through next year or the year after. I think it will be easier to make a call on it which is spring time, depending on the feedback we get from the corporates, what they're feeling.

On the same topic, which is expected loan growth, and you mentioned that you're getting the feedback from the corporates. We have a question on, what the corporates are currently saying to you? And what are their expectations for 2021?

Yes. I think pretty much what I think. But it depends from sector to sector. But by and large, everybody is expecting a better 2021 than 2020. Let's just step back and look realistically. 2020, globally, it was a pandemic. But in Egypt it wasn't that bad for those of us who live here. A lot of the corporates -- or a few corporates were telling me, "This is not the worst year we've had in the last 10." So the second worst or the third worst. And they were referring to things like -- I'll explain things like -- so excuse me, just 1 second. I need to take this call. Sorry, guys.

Well, I think, you were saying that it depends on which sector or comes to[indiscernible]?

But most companies, as I said, they were saying, "Yes, I remember this thing. This isn't the worst year we've had." So yes, globally, it's been terrible, but Egypt was not hit that badly. So we're expecting a milder year next year. Because, as I said, people are more aware, and there will be -- continuing to be consumption, no curfews and stuff. But the CapEx issue, not many people are committing to it in the first quarter. It's sort of like, let's wait and see what happens after the first quarter. But having said that, interest rates have come down by 400 basis points. So if people were willing this time last year to do CapEx, they're not going to do the same CapEx exactly at 4% cheaper on their borrowings, handling machines that are 1-year older. So maybe we'll see some CapEx starting middle of next year. Maybe we'll see beginning of the year after. But definitely, it's a lot more appealing now to -- when your corridor rate is 8.5 or 8.75, add 4 or 5 basis points to that, borrowing for 5, 6 years, 13.5% is not too expensive. 4, 5 years ago, interest rates were 24%. So they've come down almost 50%. So I think it's -- we're getting there [Foreign Language].

Going back to the bridge question, because we'll have sort of the follow-up on the same topic, which is the financial institution of the CBE's investigation and so on. You mentioned that 1/3 of your provisions was booked in the third quarter, and it was due to the CBE's related specific provisions. Are you expecting this to recur again in the fourth quarter? And should we expect 1.6 billion in provision again in the fourth quarter?

I'm not expecting -- anyway, we've had our CBE report. I don't expect them to come and audit us again in Q4. Whatever we will -- though, I think whatever provisions we take in Q4 will be COVID and economy-related. There might be specific provisions against tourism or against this and that, but it will not be -- as the Central Bank told us about certain accounts, we answered them and took the provision for them. So any more specific provisioning to be taken is not with regards to Central Bank. And it's not that they wanted us to take -- let me put it this way. It's not that they wanted us to take EGP 3 billion, and we decided to take them over 3 quarters. Okay. Let me be very clear. Whatever was requested of us, we took in this quarter. There is no delayed impact. Any more provisions we take will be normal course of business. Okay?

Clear. On this, also a specific point, the question is, can now draw a line and the same about the main issues raised by the Central Bank of Egypt this year, which you just answered. So therefore, what remains is, a process of amendments with new financial remedies likely? Correct?

Yes. But there might be financial remedies in the sense, not provisioning per se, but we're going to hire people in the other departments, if we're going to hire people in compliance, if we're going to change some systems, but it's not provisioning. It is -- we are improving the bank, and that will entail some costs, but it will not be something that will be -- it will not affect the cost-to-income, we are the people who will see the impact. Of course, we haven't yet done the analysis, but I don't expect to have a drastic -- yes, we would be very disappointed if the consultant came in and didn't find anything to improve because, you can always improve and it's waste of money. But at the same time, it's not as if our cost-to-income will shoot up from 20, 25 to 75, just on the back of improving our compliance and improving our regulatory trend. So there will be some -- I'm expecting some impact, but not the impact that will sort of make you stop and wonder what's happening.

We have a question from [ Tongbi Oju ].

I just have a question on the asset quality side and the moratorium that has been enforced by the CBE from the start off this whole pandemic. Given that -- correct me if I'm wrong. Given that, that had sort of ended at the end of September, do you still have some loans long-term moratorium? And if yes, what's percentage of your loan moratorium? And more importantly, what are you seeing in terms of repayment behavior from your client since the moratorium expired?

Yes. Thank you. Well, first of all, let me explain what is -- the moratorium in Egypt started mid-March for 6 months till mid-September. And through the blanket moratorium, whereby, every borrower, we need to cover his -- retail, SME, corporate, was enrolled in this moratorium, whether they liked it or not. And people have to proactively opt out. Now more than 55% to almost 60% of our corporate book opted out of the moratorium. So for these guys, we've already had 55% to 60% of the loan book, which is more than 80% of the total loans we're already currently paying. The other 45% of the corporate book now, if you exclude the tourism guys, who basically had 0 income coming in, then you find that a very small part of the corporate book was in the moratorium. And what we did during the moratorium is that, we constantly maintained the operating accounts of the companies. So for us, it is much more important to know how much his monthly revenue is, compared to what it was last year, than whether or not he's eligible to repay debt. So by the time the moratorium has ended, we've already sat down with all our clients, and we knew who could pay, who couldn't pay. And the bulk of them are either current by end of the year or will be current by end of Q1. That's on the corporate side. On the retail side, again, the bulk of our loans are payroll backed loans. Most of these guys work for a lot of the companies we lend to. They were not laid off. So in effect, what happened -- but with retail, the difference was 80% of them stayed in the moratorium. What happens typically in this case is, these guys have a 2-year loan. Then, basically, the 6 months that they didn't pay in the moratorium is just going to be thrown to the end of the loan life. And as long as he's employed and he's getting his salary, he's just paying it off over the 8 months -- the 6 months will be paid off over 7, 8 months because there's interest calculated on the outstanding principle for the 6 months.

I think we have more questions on the -- it's on the [ exception ]. So basically, what's the outlook on NIMs for next year?

Okay. As I said, the 9-2-0, 920 basis points local currency NIMs are probably very close to the peak. And these are a result of the super high interest rates, which we locked in back in 2017 after the devaluation and when government bonds were paying 23% or 24%. As we move forward, you'll see different pressures on NIMs. One, some of these loans -- some of these -- sorry, bonds will start maturing. Already, we've got some maturing last month, this month. So Q4, you will notice a difference there. Nothing amazing, nothing drastic, but I'm just saying this is the -- I don't expect 930, 940, 950, we're start going down into the high 800s. Secondly, as we start lending more, and I think it was -- you would see more loan growth and deposit growth, consequently, loan-to-deposit should go up, you would expect NIM to come down. Because even though loans are more profitable than key NIMs, but the profitability of income from pure NIM, it comes from the fees and commissions, it comes from the better tax treatment and it comes from better provisions that are tax exempt. So as two things happened, the high-yielding bonds start coming off on the one hand. We start increasing our lending on the other hand. We should start seeing NIMs come down. The fees and commissions go up and a lower tax rate. So on a -- if you're just looking at NIMs, yes, you'll be seeing NIM compression. But if you're looking at the total flow of the P&L, this NIM concession will be offset by fee and commission growth and better tax treatments. But NIM-NIM should go down, 920 basis points I think is the all-time high, unless we have bonds issued again at 24%, then we're happy to buy.

We have a couple of questions also related to the effective tax rate. So the effective tax rate was elevated as the result of higher provisioning or a function of the new tax law issued last year? And what's the outlook for -- the guidance for the tax rate for 2021?

The bulk of it is due to the tax law and structure of the balance sheet. What the new tax law stipulates is that, all government securities are taxed 20% of the gross. And then what is left goes through the P&L is retaxed again. So there's -- not a double taxation, but you end up paying tax on it or parts of it. Again, effectively, that raises the tax rate more than anything else. As I said, next year, we're planning -- we're hoping, and the budget is much more focused on lending and loan growth, then that should take us back to the older tax regime, where you deduct your cost of funds and your tax on the NIM or the net interest spread, minus the provision, which is tax exempt. So the outlook for the tax rate is to go down, if the loan growth comes in as expected.

Interesting. Another question, which is related to other operating expenses. So you booked around EGP 2 billion in other operating expenses. Can you explain this figure? And what to expect for the fourth quarter and next year?

Yes. The other operating expenses due to accounting system in Egypt, you have to include your contingent provisions there. So basically, you take provisions against loans as direct loan. But if you're issuing the letter of credit or letter of guarantee, this is a contingent facility. And the provisions booked against that contingent facility have to be taken in our balance sheets -- or sorry, in our P&L and other expenses. So simply more for less, it's just provisioning. Because if a client has a direct loan, and the letter of guarantee, we have to take provisions against those. The provision we take against the direct loan, go in impairments. And the provision we take against the LG will go as other expense. It's booked where other expense contain several items. So this is part of the provision which we take. As we said, it is affecting Q1 and Q2.

And do you have any guidance? Or this is it?

Yes. If we're seeing that Q4 is going to be -- I don't see provisions coming down in Q4, then probably the other expenses will go up because it's the same client who has outstanding LGs and direct loans, then I have to take a provision against both the facilities where one goes here and one goes there. So they will sort of pretty much go hand-in-hand, and the impairments will go with the other expenses mainly.

Sure. Interesting. And on fees and commission, what's the main reason for the lower fee income Q-on-Q?

Q-on-Q. I think probably a little bit of -- I'm not sure of the Q-on-Q. But I know year-on-year I can, but in terms of Q-on-Q -- year-on-year, one of the biggest impact is, if you remember, there was the interest by the government, which started in March where in order to encourage electronic payments, all local currency electronic payments are now commission-free. So if you use your Egyptian pound credit card purchasing locally, you do not pay a fee. If you're not CIB -- customer uses CIB ATM, there used to be an intercharge -- an interbank charge of EGP 10 or EGP 12. That has been removed. If you do a local currency transfer, it is now free. And that was extended to year-end. That generally, generates around EGP 500 million a year. This year, it cost us about EGP 350 million, because it didn't start at the beginning of the year. Hopefully, next year, it will be back. So that's one of the reasons why if you eliminate that difference, you'll find that year-on-year fees and commissions are up. But generally, I would say, another reason is that, February, March, April, May, was very, very slow economic activity, very little importation, if you remember back then. They were actual curfews for a while. So we lost the quarter for maybe 1/3 of the year in terms of economic activity. And this is letters of credit and letters of guarantee that could have been generated alone.

We have a question from the line of Mohammed [ Mugabi ]. Mohammed? So another question would be -- it's on dividends. So if loan growth is delayed, can we expect higher dividend payout?

In 2021?

It's not mentioned, but I guess so.

Let's look at it. In 2020, I don't think politically, it would look good for any bank in the COVID era to suddenly come out and distribute dividends. I mean, I think some jurisdictions will probably not allow banks to pay out any dividend. I don't think this is the case here. I think we will pay a dividend. But I wouldn't -- I mean, if we're expecting a nice outlook for next year, then definitely we're not going to look at the -- at a super dividend. Would we -- if our CAR is at 30%, consider a high payout, I think that would be a question we look at next year. Next year we're going to finance the board and come to a decision on that. I wouldn't be looking at now. There's too many unknowns here. Mind you, so there's a part of our equity, even though we are at 31% CAR, some of our equity is going to disappear, whether we like it or not. One item is, we have a lot of unrealized gains there because we booked a lot of the bonds I was talking about, which had been in 17%, 18%, 20%, are now making gains. Now because they're all booked and held to maturity, then all of these unrealized gains do not pass-through P&L, but they stay in my equity. As the bond approaches maturity, this unrealized gain decreases until it hits 0, and then it goes into my P&L. So these unrealized gains are going to disappear from my end. So my equity will decrease in size simply by -- it's involuntarily in a sense. That's one of the things that we have, that may vary. Because the excess EGP 1.4 billion provision that if -- instead, I can use, [ roughly, leave out ] equity. I have some tier 2 capital in there. We had 3 sub debts of $100 million each. So yes, we do have high capital adequacy, but it will not stay at 31. But again, it's a good question. It's something, I think it will be looked out by the Board and by management in the coming year.

The next question would be on another article of the new banking law, which is related to the 1% development tax. Is there any time line for the implementation of this new tax?

Probably this year, I think. I would imagine. I don't think there is any -- I don't think the government wants to be collecting any debts.

Okay. The next question would be, can you please explain the significant reduction in noninterest income in the quarter? Compared to earlier in the year, only EGP 470 million versus around EGP 1 billion in each of 1Q and 2Q? I guess you answered this, Hussein, in the fees and commissions?

Yes. That's in the fees and commissions. But I can double check that particular quarter because this happened at the end of March. So it shouldn't effect Q2 as well. I can double check what the difference was. And I'm sure we'll reach out to you guys and you can publish it for us. I'll find out for you.

Sure. With regards to the higher provisions related to the -- of balance sheet items. It was mistaken after being prompted by the regulator?

No, this is -- these are provisions related to, as I said, the LC and LGs of -- were the general outstanding portfolio. It wasn't the specific -- firstly, the management overlay here.

So the same -- on the same topic would be, how much of the other expenses was contingent provisions?

I'll give you the break down. I'll definitely get you the break down.

Sure. Okay. And the next question would be on the OpEx run rate. Is third quarter OpEx would be a sustainable run rate?

There are no unusual items in OpEx. I think, I remember that -- so the -- there's something pull up [indiscernible]. Yes. Because the third quarter is slightly lower than the first two. Remember, in the first quarter -- in the second quarter, when we purchased, we did the work from home. And we purchased a few laptops, and we did the 4,500 licenses and stuff. So yes, it's come down. And I think that is more the run rate than the first two quarters, because you piled on a lot of expenses with corporate and sanitation facilities and all that stuff, we piled on a lot of expenses in the first quarter and second quarter, which are not repeated in Q3. The Q3 is more representative of the run rate I think.

My question, which is also regarding the reports and the CBE, can you please talk about comments from the regulator on the risk and compliance function?

No specifics. No. Nobody talks about the specifics of their audit. Definitely, we had certain things. There were -- and we are fixing them. But more than that is, will be too intimate. Yes.

The next question will be, do you expect your yearly loan book to continue to shrink until COVID is behind us?

Probably. If not shrink, but definitely not grow aggressively, because, again, it is more of the sectors that are more impacted by COVID, are the ones that are borrowing dollars. There is -- and you break them down tourism, I don't see a lot of tourism growth, and the telco would be having this. At least quite behind any sort of mid of next year or Q3 of next year. And oil and gas, again, what factories start looking, global trade, there will be more demand for oil, and oil prices will pick up slightly, according to most of the literature. We do -- so again, we see a bit more activity there. And finally, expectation. Because even that as we're saying, we were lucky enough in Egypt that we weren't that badly hit, but a lot of the extra markets were. So again, yes, I would expect at least for the long period, if not shrinkage -- well, shrinkage actually talking about the shrinkage means these guys have enough cash to pay us off. I rather see shrinkage in the book than NPLs than these loans converting into NPLs. So a combination of payoffs and/or very mild growth, but definitely, the focus on growth for the coming period will be the local currency balance sheet, deposits and loans.

A question also, sort of related to the same topic, which is, can you please share the macro indicators taken in your model, which are leading to higher provisioning in the third quarter and expected to be higher in the fourth quarter?

Not off the top of my head, really. Not because I'm trying to declare the result. There's obviously, we did plenty of them. And I'm not sure if that actually share that, again, into questions here.

Okay. So moving on to the next question, which is, what's going under the good growth numbers? Are you working within your budget for next year?

Okay. I can answer that. I think we're looking at sort of north of 20% loan growth and less than that on the deposit growth. Again, these are the numbers, as you know, we presented to our Board a couple of weeks ago. And because of -- usually what happens is, these numbers are quite solid, and we stick with them most of the year. But I would genuinely say, because of what's happening with COVID, when it will actually come through, when would it come through, it's totally changing pretty quickly. I really, really would hope that we can give these numbers. But I mean, this is the sort of budget that you have to sort of watch very carefully, because I think it can change on anything. It's a very interesting year. I'm 58. I've never seen year like 2021, where things are going to hop back -- can change so much. You can have a very good year or a very, very bad year, automatically. Effectively, 20% to 25% loan growth, around 3% deposit growth, loan-to-deposit ratio will go up slightly, and that's basically the sort of growth numbers.

Interesting. And another question, which is related to the OpEx, can you comment on your current expectation for Egypt in 2021?

Good question. I think most of the consensus, most of what I've read is pretty much stability and movement within the range of 2%, 3%. It's a factor of supply and demand on the dollar market. If we see economic activity pickup, this will entail demand. On the other hand, we'll continue to see strong flows on the current rate. Remittances are still holding up very strongly. As global trade picks up, so as can -- revenues will come in. Tourism, I think, will start picking [ EGCT ] tourism. We'll start picking it up, I think, after April, May, as the vaccine becomes more readily available in the [indiscernible] . And so I think -- I don't see why the Egyptian pounds should weaken over the next period.

Okay. Interesting. Regarding the guidance or the outlook for the loan growth in 2021, you mentioned 20%, 25%. Is this for the overall loan book? Or just for local currency?

Sorry, could you repeat that? You just cut out the first part of the question. Just the first part of the question.

Sure. On the loan growth guidance for 2021, you mentioned 20% to 25%. Is this for the overall loan book? Or just the local currency part?

I think it's mainly driven by the local currency part. It's overall, but primarily 99% driven by the local currency.

Okay. The next question will be, should we expect any follow-ups from management in the future on the progress regarding the CBE audit report?

Not the CBE audit report, but the -- I think we will give you update on the progress of the consultants coming in. CBE audit reports, we've prepared our answers, and we are finalizing it to be distributed to the CBE and discussing with you. But this is a report -- this is something that happens annually or every 2 years. So it's something that's which we miss. We remedy, what needs to be remedied. And I think what is more relevant to everyone is, as we bring in new consultants, and so I will definitely keep you updated as to what the findings are, what we want to do, what we plan on doing. And we should have -- it should happen in first quarter of next year. And we're already -- I think we're signing the mandate before Christmas [Foreign Language], we should have it on the ground beginning of the new year. And we are going to have a very busy 3 months in bank in preparing the financials and everything. So it's going to take a lot of effort possibly.

Mr. Hussein, I think we don't have any more questions in the queue. I know you don't like to say any concluding remarks. Do you want to change your mind this time?

Yes. Actually, I'll surprise everybody. I just want to thank everybody for the trust in us. We really genuinely -- joking aside, I genuinely have been -- I'm very -- I genuinely appreciate you guys speaking and [ believing ] us, because putting myself in your shoes, back in the 23rd of October, when I just came out, I had nothing. And I told you, "Trust me. There's nothing wrong in the balance sheet." And thank you, for those of you who did. Thank you for those of you who stuck with us when we were late. We were supposed to come out on the 6th of November, and the 15th of November and then every week, we were supposed to come out. Again, thank all of you, you've all been -- I don't want to say behind my back, but you've been very nice to me, at least on the phone when we talk to each other. So then thank you very, very much, and I hope we -- this doesn't happen again. Thank you.

Thank you, Hussein. Thank you, everyone, for joining us today. Wish you a great day. Thank you. Goodbye.