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

Good day, and welcome to the Commercial International Bank of Egypt FY '20 Earnings Call. This call is intended for analysts and investors only and is not intended for the media. If any media has dialed in, please disconnect now. Today's conference is being recorded. At this time, I would like to turn the conference over to Waleed Mohsin from Goldman Sachs. Please go ahead.

Thank you, Christine. Good day, everyone, and welcome to everyone joining the call. On this call, we are pleased to host CIB management team represented by Mr. Hussein Abaza, CEO and Board member; Mr. Sherif Khalil, the Chief Communications Officer; Ms. Yasmine Hemeda, Head of Investor Relations; and Ms. Nelly Zeneiny, Investor Relations Senior Officer. So without any further delays, I will pass in the call to Yasmine.

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 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 or revise forward-looking statements to reflect changed events or circumstances. And that ends the disclaimer statement. I will now hand over the phone to Mr. Abaza to give us a brief overview of the full year 2020 financial results.

Thank you very much. And good morning, good afternoon, everybody. Thank you to dialing in. I think that if you got a chance to look at the results, they're pretty much in line with what we've been guiding for the last few months. The obvious significantly different thing about the [indiscernible] of the year is the very high level of provisioning, which is related to the COVID-19 crisis. If you look at our total provisions for the year, it's about EGP 6 billion. There's EGP 5 billion on their own impairments. There is EGP 1 billion in contingent impairments, which is in other expenses. This is after around EGP 2 billion the year before or less. Now of this EGP 6 billion, about EGP 700 million is related to 2 specific exposures. We were asked to take this impairment during Q3 by the Central Bank on 2 tourism exposures. Other than that, there was no financial impact at all from the CBE audit report. So in all other aspects, the balance sheet's top line grew very well. And even accounting for the EGP 6 billion in provisions, bottom line only dropped by 13%. Now if you look at the provisions in a little bit more detail, I think, is very important. As I was saying, these provisions were taken for COVID-19, and it was a function of the IFRS 9 new modeling system because even though the provisions reached EGP 6 billion, there was not much asset quality deterioration. So a lot of the provisions were taken because of forward-looking -- the way IFRS 9 [ P ] works is that you look at your historical probabilities of default, but these are also affected by your economic assumptions, whether it's GDP growth, whether it's FX or it's interest rates. And basically, you run 3 different scenarios, a base rate, a best case scenario or the worst scenario, and you assign probabilities to each. In our case, because of the uncertainty, we assigned a 55% probability to the base case. We assigned a 40% probability to the worst case and only a 5% probability to the best case. And that is why the model is requiring high levels of provisions without seeing asset quality deterioration. What's -- the reason we didn't change our model for our weightings is that we're waiting to see actual improvements other than expected improvement before we start taking best provisions. Because in our view, it's very hard that we take an optimistic view and then take very little provisions in Q4. Then suddenly something happens in Q1, and we take a very higher provision in Q1. So we'd rather continue on a certain of the provision and then taper it off based on actual facts rather than projections. I think having said that, our expectation for 2020 is that in terms of the economy, I think we're expecting a gradually improving year quarter-on-quarter, with the toughest quarter being the quarter we're currently in, because of the fact, at least from Egypt's point of view, this is winter. This is -- as last year's [ accelerating to ] go by was when infection rates were worse. As summer came in, warm weather came in. It had a better impact on the infection rates. In addition, the vaccine program globally and locally should start gaining traction the further you go into the year. So it's going to be gradually improving yield from one quarter to the next, which means higher loan growth one quarter to the next and lower provisioning one quarter to the next. If we continue seeing improvement, in tangible improvement, we will then change our economic models, which would result in much more realistic provisioning. To go back to the provisioning for just 1 minute. If you look at our balance sheet structure today, our total provisions to our total unsecured loan book have reached around 17%, 18%. If you deduct the NPLs and assume 100% provision for them,then our provisions to our unsecured performing loan book are above 15%, which is, I think, very, very conservative given the quality of the book. So we've come out of the COVID, or at least come out of 2020, I think, with a very robust balance sheet. In addition, our capital adequacy is about 31%. So that should allow us, again, to cover any unexpected loss. And looking forward, we're also expecting to see -- I think the one thing that -- the other second thing I want to mention was that during 2020, we saw the 2 main interest rates in Egypt decoupled. And these 2 rates, one is the policy rate, which is the rate at which we end and model. And that currently is at 8.25% to 9.25%. And the net corridor, which is the rate which we lend off, it's equivalent to our LIBOR, is 8.75%. This has come down 400 basis points in the last 12 months. And this is the rates which the government uses -- the Central Bank uses to manage inflation. The expectation on this rate is, if anything, it can stay flat or go down very slightly in order to encourage economic growth, whereas the other important rate is the sovereign rate, which is the rate at which the government borrows, and theoretically the risk [ release ]. Now because of what's been happening in [ pound ], the need for dollars coming into the country and the drop in tourism, the economy is now relying largely on carry trade money as a venture source of dollars. So there's sovereign yields, the high sovereign yields. Currently sovereign yields are around between 13% to 13.7% are the main tool by which we attract the carry trade money. So while we actually saw over the last few months the policy rate drop by 100 basis points, we actually saw the sovereign yields go up by 100 basis points. So it's a complete decoupling there. And I think this is -- we're expecting to see for at least the remainder of the year until tourism bounces back because not only is it important to try to attract more foreign currency into the economy, we also have about $27 billion of carry trade money that we don't want to see leaving the economy. So -- and on the back of that, I think since sovereign rates are so high and we have a large stock of carry trade dollars, I don't expect to see the Egyptian pound weakening. So basically a stable foreign currency rates. A high sovereign means a much lower policy rate, which might pick up by 25 or 50 basis points over the coming period, and increasing economic activity over the next 3, 4 quarters with loan provisions and all funds. I think I'll stop here and take questions if you guys are ready.

[Operator Instructions] We'll take our first question from Rami Sidani with Schroder's.

I think 2 questions, please. Just on the provisioning. Again, the Stage 2 has increased from, I think, end of 2019, of something like 27% to 33% of the loan book. Could you please explain to us what has triggered that? And how would this bode for the potential more provisioning going into this year? Also, if you could provide some guidance. I understood that we wouldn't expect a gradual drop in provisioning. Could you provide some guidance to that for this year?

Let's start with this Page 2. Now the reasons for companies to go to Stage 2 is if you -- if a company drops 2 risk rating notches since the day it enters the bank, and if the company is part of what the CBE has defined as risky industries. Now risky industries include cement. They include, of course, tourism. They include construction, subsectors of oil and gas. So effectively, it is not that we changed anything in the notebook, but rather that certain industries were defined as high risk. So companies that are risk rated 5 in these industries or below are now all considered Stage 2. It's not that the company itself is nonperforming. It's going be a change in definition based on criteria set. So that's...

That's from Q2 provision more for that portion of the loan book? [indiscernible]

Absolutely. This is where you're encouraged to take management overlays. So for example, in the steel industry, if we give out a new loan, we have to take a 20% provision order. So the strategy there is, if there is a profitable short-term transaction, we will book it, take the provisions. Once the transaction unwinds, then you unwind the provision and you book the profits. So it's not -- at the moment, it wouldn't be a good idea to get into medium-term lending into, for example, the steel industry because we'll be forced to take a 20% provision against it. However, a short-term transaction that's open and shut inside 4 months would be good because, during this period, you have elevated provisioning and then coming down. So it's a new world that we're working around how to deal with it profitably. So that's some thought that. So what was your second question? [indiscernible]

If could give us some guidance on the target, if you could give us some guidance on the provisioning for this year? [indiscernible] what is your expectation?

Well, I think our expectation is still between EGP 1.5 billion to EGP 2 billion maximum, I think, as we speak today. If we see that it's an improving year, the vaccine gradually starts to take hold, that the -- we see GDP growth of 2.5% -- 2% to 2.5%, then I think with the bulk of it coming in the first 2 quarters, as I said, it's an improving year, each quarter will be less than the next one. So I think in general, we're cautiously optimistic in that sense.

Excellent. Okay. Maybe one last question for me regarding the high capitalization as a result of the Central Bank not allowing banks to pay dividends. What's your view on the optimization of your balance sheet? Would you consider a special dividend at some point? Or you would just let your risk-weighted assets grow into it from now, which would take much longer?

Combination of both. To be honest, the fact that we didn't pay out a dividend in 2020 puts a little bit of pressure to pay out maybe a double dividend next year, but nothing more than that because we we've been waiting for the CapEx come down for 100 years. But [ same ] when it comes, it should come quite strongly. So if there is a super dividend or it's a dividend to compensate for the lack of dividend this year more than anything. And then bringing down the -- by booking beyond simply by booking loans 100% risk-weighted versus the 0% risk-weighted deals. In addition, we're looking at various options. But it's primarily a combination of a higher-than-normal dividend next year and hopefully, aggressive loan growth in 2022.

[Operator Instructions] We'll take our next question from Soji Solanke with Renaissance Capital.

This is Soji from Ren Cap. I have a couple of questions. The first one is, I just want to focus just firstly on just guidance for the key numbers. Kind of run us through guidance for net interest margins, loan and deposit growth, noninterest revenue growth, cost growth, PVC growth and return on equity. So let's just start with that before my next question.

I think once we've done that, and we've done this...

Do you want me to ask my other questions now? Or how do you want to go? [ Technical Difficulty ]

Please stand by. Please go ahead.

Sorry, I got cut off. To try and answer the question, let's start with our expected loan growth. I think we're looking at working capital loan growth of 25% because today, what's happening is most companies [ Technical Difficulty ]

Stand by. Please go ahead.

Sorry, I was cut off again, I'm very sorry. I think let's start with loan growth. I think our expected loan growth for 2021 is basically around local currency working capital should grow by about 20% to 25%. Now the way we came to this number is that most of our corporates today are operating at around 60% operating rate. And they're expecting this to go up to around 75% operating rate. So that would give us about a 25% increased need for raw materials, which will translate into 20% to 25% loan growth on the working capital side. In terms of -- on the foreign currency side, again, because these are the industries that are more impacted by COVID, the recovery will come towards year-end and then it be sort of low single-digit recoveries. In terms of deposit growth, we're targeting around 16% to 20% deposit growth. But the most important thing is at least 50% or 55% of them should come in the form of CASA, current and savings. So it's more into the mix, it's more important than the volume, because that has a very strong impact on NIM. Coming to NIMs. What we're looking at here is more, again, a slight reduction in NIM because today, we are at our -- the peak NIM of the bank was during 2021 -- 2020, I beg your pardon, when we hit about 910 basis points local currency net interest margin. Since then, we've seen some of the bonds that we bought -- sorry, excuse me 1 second. We bought some very high-yielding bonds back in 2016 and 2017. And there's -- some of them started maturing at year-end last year and the beginning of this year. So as these bonds mature, we will see it slightly. On the other hand, we're expecting to see 20% to 25% loan growth. Now loan yields today are in the region of around 11%, whereas T-Bills are yielding around 13.5%. So all of this lending is going to cause NIM compression. But the lending compensates for it by fees and commissions, which you don't get with T-Bills, and times a better tax treatment. But on a pure NIM basis, we will see NIM compression. On the bright side, we'll see some NIM protection coming from the cost of funds. As you know, during 2020, the public sector banks were issuing very high-yielding CDs, and they stopped issuing them back in end of October. So for November, December, January and February, we were able to bring our cost of funds down, and we hope to continue this for the year. But all in all, we should start seeing a slight compression in NIMs. Our local currency NIMs today are over 800 basis points. So we should see NIM compression of maybe 60 to 70 basis points over the next 12 to 14 months. Noninterest income should match growth in loans. So effectively, we should see about 15% to 20% there. And with -- as I said, the provisioning should be around EGP 1.5 billion to EGP 2 billion. That should give us that -- sorry, just a second, that should give us about EGP 12 billion bottom line and the sort of ROE in the sort of low to mid-20s.

Can you hear me?

Yes.

Okay. When you say the bottom line of EGP 12 billion, are you referring to before tax? Or what number are you referring to?

No, after tax, after tax. This is up from the EGP 10.2 billion this year -- compared to the EGP 10.2 billion of this year.

ROE, low to mid-20s. Okay. That's understood. My -- just one quick follow-up question, because I think you've answered most of them, is just if you can spend a few minutes just talking about how you think about noninterest revenues. Because we continue to see some of the government-owned banks, for example, double down their investments in key generating businesses. And I think for your bank, you sold the investment bank a couple of years back. And as reported in the press recently, you are likely exiting [ far id close ] as well. So I'd just like to understand what's your strategic plan for noninterest revenue generation beyond what was driven by credit? And why have you been exiting those businesses over the last couple of years?

Okay. Okay. I think when we sold the -- our investment banking franchise, at the time we sold it at 2x book, and it was because I think it wasn't the best -- it was taking a lot of time from our management and at the same time, having commercial bankers on the Board of an investment bank trying to run it, it was not the sort of most efficient situation. Now the bulk of fees and commissions generally in banks come from commercial lending activity. And the reason we've seen depressed fees and commissions at CIB over the past few years has been because of the depressed lending activity. And now the one thing that I always want to clarify is it's never that we don't want to lend. Good credit is always demand-driven. So anytime we don't do lending, it's because our corporates, for some reason, do not want to loan. So to give you an example, today, if you look at our corporates, they are utilizing 52% of their facilities. So effectively, they have bank lines. But at the moment, because of consumer demand, they are not producing at rates that they need to draw down more lines. So between and coming back to [ note rate ]. I think the focus on the fee income is more in terms of corporate credit and as the CapEx spending comes back because the bulk of fee income impacts, to be meaningful, has to come from corporate book. It comes from -- most companies in Egypt borrow in Egyptian pounds, but they need to import raw materials. So they will borrow in Egyptian pounds, use the money to buy dollars to open an import letter of credits and import the goods. We charge FX income there, and we also charge fees and commissions for opening letters of credit. So this is where the growth in fee income really will come.

And just what are fees generated by transactions other than anything related to credit? I mean how do you think about this? What are payments-driven, channels-driven? Is there a plan? What are you doing there?

No. I mean as a bank post, we've seen payment companies come up in the market. Now what these payment companies are doing? Basically, they're providing the service, and it's mostly for the C&B class. So when you see companies like [ foreign B ], they for us are a service provider. If you use the -- if you open the CIB wallet, you will find an option of using any of these companies. So I think it is -- payments are very important, but we've seen a very strong move from the government, in order to encourage financial inclusion, is to cut down on these payments. So this year, for example, starting March, or last year, starting March, if you were to transfer money in Egypt from a local currency account or another local currency accounts, it has become 0 fees. If you are a non-CIB customer using the CIB ATM, 0 fees. So a lot of the retail fees have been cut down. So I think the focus and the growth and the real profitability in terms of fee income comes from credit-related fees rather than retail-related fees because the government seems to be coming in and decreasing these fees strongly.

[Operator Instructions] We'll take our next question from Aybek Islamov with HSBC.

Hussein, I just wanted to clarify a couple of things with you. Firstly, there's quite a steep increase in customer deposits in the fourth quarter. So I'm curious as to what's driven that? That's the first question. Secondly, I wonder if -- for your customers who carry foreign currency loans with you, can we -- can you convert these loans into Egyptian pounds? Can you trigger a conversion from FX into local currency loans on your balance sheet? Can you ask your customers to convert such loans into local currency, basically? And I think, thirdly, you mentioned that the COVID has a stronger impact on foreign currency lending in 2020 -- sorry, 2021, still, but where do you expect a normal run rate for foreign currency loans like a normalized growth rate for foreign currency loans in the economy where foreign currency exchange is no longer restricted as it used to be in the past?

Sure. Let me start with the first. You were saying you saw because the line was cutting up, decrease or increase in our deposits, you were saying? I'm sorry.

Increase -- yes, sharp increase in your deposits, that's what was there.

Yes. Yes, yes. That was -- if you remember, I was saying the public sector banks are no longer issuing the 12%, 14% and 15% deposits. So a lot of people no longer are going to the public sector banks because this was the main attraction [indiscernible] means. And that's what I'm saying. It's allowed us to get a lot of deposits and at a much cheaper cost. It's continued into Q1 as well, which is very good news in terms of our funding cost. I'm trying to remember the second question. I'm sorry, I just have a zero retention ability right now. Do you have any second question?

Yes. So the second question, so I was asking about your customers ability. Can you encourage your customers to convert foreign currency loans into local currency loans, yes?

It would depend on our customers' revenue stream because if somebody is earning money in dollars, if you would not want to borrow in Egyptian pounds and pay a huge interest differential, if he -- and if he wasn't earning dollars, then I wouldn't be giving him a foreign currency loan to start with. So I can encourage him, but it wouldn't make sense to them. And if he has -- as long as he has foreign currency revenues, then he should be allowed to borrow in foreign currency because we always match the loan to the currency of the revenue stream. And again, I'm trying to remember the third question.

Yes. The third question was about where do you see the normalized growth rate for foreign currency loans, so long-term normalized growth rate in the market where we don't have foreign currency constraints as we used to in the past issue?

It will basically be a function of -- if you look at the industries that will basically borrow in foreign currency, they are the industries that generate foreign currency, so ultimately tourism, oil and gas, exports. So I think even though these industries will recover sort of slightly later, I would think we would -- you should be able to see pretty decent growth in all of them, especially the exploitation because -- once that's the benefit of if your export market recovers from the COVID-19, then your revenue stream will recover quickly. So I would imagine some of the exporters, especially the food and the textile exporters, we should start seeing contracts coming in pretty soon for them. So yes, there are certain aspects. Tourism, again, is going to be a slow road, but that's always been the case with tourism. They have a couple of good years, they have a couple of bad years, and it takes time to recover. But that's why our tourism book is very select with either the top international hotel names or the top 3 or 4 local players, who tend to recover well and have tended to do well over the past few years.

[Operator Instructions] We have another question from Soji Solanke with Renaissance Capital.

I just have one quick question. So I'm just trying to understand what's been happening since the end of the moratorium period in terms of your corporate and retail loans? Have those performed? Have you -- I mean sectors are you still struggling with? What sort of conversations are you having with clients nowadays?

On the corporate side, it's been pretty good because, first of all, about 60% or over 55% of our corporate clients opted out of the moratorium. So -- and again, if you think back and look at what happened in Egypt, despite everything, we still recorded 1.5% GDP growth. So this was not a disastrous year for the clients. Most of them, if you look at clients' earnings, they're starting to come out, are showing profits that are about 15% to 20% less than the year before, but they're showing profits. So most of these -- I'm talking about the larger corporates, the ones we deal with. So for most of these guys, there is no reason for them to default, even those who used the moratorium by -- the bulk of them by end of year were current because they wanted to show normalized loans; they didn't want to have vastly inflated loans on their balance sheets. With retail, most of the clients opted to stay in the moratorium. And of our -- our retail book is about 18% of our total book. About 5% of clients are having issues having to -- 5% of the 18%. So we're talking about 1% of the total book are having issues in terms of having less revenues or having no revenues. And these, I think, we are rescheduling with them over time. But in terms of provisioning and coverage, we're pretty comfortable. And as the economy starts to -- bounces back, they should be able to repay the loans.

Okay. And then just 2 quick things. On -- can you just speak about the tax rate and how you think that evolves, I guess, for this year? And just on your provisioning, because we also have the contingent provisions, so EGP 1.5 billion to EGP 2 billion, I believe, is the normal credit-driven impairments. But what are the contingent provisions it takes? How do you -- what's the outlook? What's the outlook for that?

Okay. The contingent provisions are also credit-related, but they are linked to contingent facilities. So basically, elective guarantee. So if a contracting company has this issue of elective guarantee, and it's stable, that's a contingent liability. And we take a provision on that. But because of IFRS 9 accounting, it doesn't appear on the impairment line, it appears in other expenses. So it's the same credit risk. It's just the sort of facility that the company has taken. So it is -- that's why when I talk about credit impairments, it's EGP 6 billion. It's EGP 5 billion on the direct facilities, it's EGP 1 billion on the contingent facilities. And when I talk about next year being EGP 2 billion, it's going to be a combination of about EGP 2 billion or EGP 1.50 billion to EGP 2 billion. It's going to be both, both direct and contingents. So you'll see some of it in other expense and some of it in the impairments.

Okay. And what of the tax rate, what are you thinking of the tax rate for this year, for 2021?

Tax rate, yes, yes. The more lending we do, the lower the tax rate because the highest tax rate happens when you do a lot of T-Bill purchases because T-Bills are taxed at 20% of the gross amount. So if you buy a T-Bill that yields 13%, you recall that 13% is interest income. But what you actually receive in your hand is 80% of that 13%. So you receive 10.4%. So it looks good in the NIM, but then you get a much smaller -- you get 80% of that amount. And then there are further deductions and it goes into a second tax. So you end up paying a much higher tax rate. If you lend them, say you're lending at 11%, you deduct your cost of funds, could be 6%, and then you also deduct whatever provision charge, there's some SG&A and whatever, and what is net, you then pay a tax on. So the absolute amount of tax paid is always much less when you're lending as opposed to when you're buying T-Bills. And so if we're expecting 20% to 25% loan growth this year, then we should pay a lower tax rate than we paid in 2020.

Okay. Understood. I mean let me just take advantage of your time. I just want to pick your brain on the competitive landscape. So given what happened last year and also because there are in Egypt, there's a bit of M&A happening for different reasons. So you have some of the Lebanese banks having to dispose of assets locally. You have some of the international banks [ inducively ] trying to bulk all their smaller operations in the country. If I just talk about how you view the evolution of the competitive landscape in Egypt and how you think this could potentially affect CIB spending, what is your relation to corporate funding cost, et cetera? So that's, I guess, a more bigger picture question. I want to just understand how you're thinking of this dynamic.

Sure. Well, definitely, I've always said it, it is much, much easier to run -- to profitably run a big bank than to run a small bank because of several things. A big bank, you basically have a larger equity base, so you can lend larger amounts, so you can target larger companies, who are usually better run, and thus your credit risk becomes smaller. In addition, you are allowed to open more branches because you'd like to have one branch for every EGP 20 million of equity. So having more branches means you can basically gather cheaper deposits. So it is much, much easier to make profits out of the large bank than it is out of a small bank. And the fact that we're seeing some M&A, I think most of the M&A we saw has been driven by necessity because of the situation with the Lebanese banks. But usually, we -- even though it makes sense, we're not -- we haven't seen a lot of a M&A historically in Egypt. So definitely, competing against big banks would be more challenging for us than competing against small banks, definitely.

We'll take a question from Rami Sidani with Schroder's.

Hussein, one more question for me, please, regarding the Central Bank circular to lend a minimum of 25% to the SMEs. I mean where banks were already struggling to meet the year, I think 20% would be a good target. And any failure to do so, it sounded quite punitive, given the noninterest earning deposits end will have to be deposited to offset the figure. So where do we stand on that? And how easy is it going to be to achieve this target?

Okay. Well, first of all, there have been a couple of changes. One is they've defined or they fixed the base of which you need to reach 25%. So what they said was you need to reach 25% of your loan book as of 31st of December 2020. So it's no longer a moving target as we know what the number is. So we actually know what the absolute number we need to get to is, okay? So -- and you have 2 years to do this. So this is one positive. The second positive or negative is you know exactly what the consequences of not meeting this target are. Previously, it was you have to do this. And maybe they said, what will you do, whether we want to kill you or fire you or just target you or whatever. Now we know, you take whatever deficit and you place it with the central bank for 0 interest. Now the other twist is not only do they want 25%, but they want 10% of the 25% to be in Ss, not just SME, and S is defined as companies with revenues of below 20%. So you're looking at micro finance, and from where we are -- yes, where we are today, that we're at about 13%, but it's all in -- or primarily in M. So effectively, forget about M, we now just have to grow by 10% in S.

That's still quite challenging, no?

Very much so, which -- I mean it's also completely out of left field. I mean our growth plan -- I mean [ Sherif Khalil ] can give you -- we've been shut up for too long here. But our growth plan has always been growth at the high-end ends, who basically could be supply chain [indiscernible] in the corporates. But yes, now we're going to the other end of the spectrum. Now [indiscernible] so that again -- so if you guys...

By the way, quick question would be securitization -- sorry, with the securitization of loan of, let's say, nonbanking finance and so on, would they account towards this indirectly?

Yes, I think they would. And if you lend to a micro finance company, it would -- but lending to a micro finance company can only take you up to 2.5%. No matter how much you go, it accounts for 2.5%. So effectively, we need to lend EGP 8 billion to micro finance companies in the next 22 months -- in the next few months. And we've spoken about this before. In our view, the only way for us to get into this sort of sector is either to buy a plug-and-play company or to bring in talent and the computer model and hire the collection guys who do it. So given that I think we are now 59 banks in Egypt are now scrambling, I would imagine whatever micro finance companies were available have now sort of tripled the value. So I [indiscernible]

Basically, do we account for a -- should we account for some -- a financial impact, given potentially you have to replace some of this liquidity as a consequence of not meeting the target?

At the end of 2022, not before that. But in my view, I think, I mean if you're asking all of the banking sector in Egypt to lend 10% of their total assets plus in existing micro finance companies, plus [ informal ] lending in the Basel, I'm not sure that there is enough S demand to take all this. But I think this is something that they might revisit over the next 22 months. Because if you run [indiscernible]

So that target was not the end of this year, it's end of 2022?

No, no, it's end of next year. Yes, yes. End of 2022. End of 2021, I would have thrown in the towel in [ here last year ]. 2022, still some time before you sell your CIB stock forward.

Yes, hopefully, I'm hoping the Central Bank will see that this is not achievable for all banks, and accordingly, would like to set a more sensible target.

I think so. I think it's not -- just not achievable, I don't think there is that amount of Ss to borrow. 10% of the entire banking system loans plus the existing micro finance companies and securitizations, plus the informal lending that's already happening. In 22 months, it sounds like a stretch to me. But we'll see -- but I think we still have 22 months to -- for this to develop. So it will have time.

We'll go to our next question from Amit Mamtani with Goldman Sachs.

I have 2 questions. Firstly, if you could please talk about the sharp increase in fee income during the fourth quarter versus 3Q? And secondly, if you could please talk about the increase in NPL ratio during the fourth quarter and what drove it?

The increase in NPL ratio is basically we had 1 company or 2 companies who were on the watchlist, and they stayed more than their allotted 9 months on the watchlist. So they've come down into NPL territory. But they're fully provided against. So there's no P&L impact there. In terms of the fee income, I have to get back to you on that. I don't want to say something which is not accurate because I -- maybe I -- somebody called my notice to it -- actually, it was really talking just before the call. So I'll get back to you on this one if you'll allow me. I'm sorry.

It appears there are no further questions at this time.

Okay. And Hussein, any final comments from your side, any closing remarks?

I think I've spoken enough here, and we have more [indiscernible] to say if [indiscernible] has anything to say then.

Thanks so much, Hussein. So I'm passing the call to the operator. Operator, please close the call. Thank you, [indiscernible], for attending.

Thank you, guys. Thank you very, very much.

This concludes today's conference. Thank you for your presence and patience.

Thank you. Bye.