Efg-hold.gdr S Regulatory News (EFGD)

EFG HERMES REPORTS THIRD QUARTER 2011

CONSOLIDATED NET INCOME OF EGP32 MILLION; ON TOTAL OPERATING REVENUE OF EGP396 MILLON

Cairo, November 16th, 2011 - EFG Hermes reported today consolidated net income of EGP31.5 million for the third quarter 2011, down 64% from EGP88.1 million in third quarter 2010. Consolidated total operating revenue reached EGP395.7 million in 3Q2011, from EGP496.9 million a year earlier. Total assets stood at EGP49.3 billion at the end of third quarter 2011.

Key Highlights

·; The Group revenue declined 20% Y-o-Y to EGP396 million in 3Q2011. The Commercial Bank revenue came at EGP246 million, a contribution of 62% to the Group's revenue.

·; The Group's operating expenses fell 12% Y-o-Y and 8% Q-o-Q to EGP274 million in 3Q2011, reflecting the prudent measures taken to reduce the operating expenses. The Investment Bank operating expenses declined 22% Y-o-Y and 14% Q-o-Q. Consequently, the Group 9M2011 operating expenses came at EGP858 million.

·; The Group reported net income after tax and minority interest of EGP31.5 million in 3Q2011.

·; The Investment Bank revenue declined 38% Y-o-Y to EGP150 million in 3Q2011. Fee and commission revenue contracted by 26% Y-o-Y in 3Q2011, on the back of lower revenue generated from the four business divisions.

·;  Credit Libanais reported net income for 3Q2011 of USD16.7 million, an increase of 4% Q-o-Q. Higher fee and commission income, strong bad debt collections and reduced general expenses, more than offset declining net interest income and mark-to-market losses in the securities trading portfolio.

·; Credit Libanais's RoAE and RoAA remained virtually stable Q-o-Q, at 18% and 1.15% respectively, both on or above Lebanese peer average.

·; Our brokerage remained #1 on the Egyptian Stock Exchange and the Dubai Financial Market and maintained a leading position in a number of other regional markets in 9M2011.

·; EFG Hermes aggregate Assets under Management stood at USD4.3 billion at the end of 3Q2011, of which public AuMs were USD3.2 billion.

·; Investment Banking managed to close the third transaction this year, the sale of Olympic Group, Egypt's largest white goods manufacturer, to Electrolux, the world's second largest manufacturer of household products. The USD452 million transaction further cements the position of the investment banking division as the top M&A advisor in the MENA region.

A. GROUP PERFORMANCE

I. Performance Indicators and Financial Highlights

Table 1: Key Operational Indicators

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Table 2: Group Financial Performance

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II. Group Revenues

Table 3: Group Revenue

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The Group revenue declined 20% Y-o-Y to EGP396 million in 3Q2011, as revenue generated from the Investment Bank contracted, given the poor markets conditions across the MENA regional markets. The Investment Bank revenue declined 38% Y-o-Y to EGP150 million, due to a decline in revenue generated from different divisions, which includes capital markets and treasury operations and fee and commission business. For the Commercial Bank, revenue was broadly stable, down 4% Y-o-Y to EGP246 million. In 3Q2011, the Commercial Bank contribution to the Group revenue stood at 62%, while the Investment Bank represented the remaining 38%.

For the 9M2011, the Group revenue declined 33% Y-o-Y to EGP1.3 billion. However, the comparison is not indicative, since 9M2010 figures included the Commercial Bank 3Q2010 revenue, as the Bank was consolidated only in 3Q2010. Moreover, 9M2010 included a one-off capital gain of EGP716.6 million from the sale of Bank Audi. The Investment Bank revenue declined 42% to EGP541 million (excluding capital gain from the sale of Bank Audi in 9M2010), due to lower revenue generated from capital markets and treasury operations revenue and from Brokerage.

III. Group Operating Expenses

The Group's operating expenses fell 12% Y-o-Y and 8% Q-o-Q to EGP274 million in 3Q2011, in line with the cost cutting strategy outlined earlier this year. This stringent cost cutting on the Investment Bank side supported the Group's net operating profit margin, which reached 31% in 3Q2011.

 The decline in the Group's operating expenses is attributed to a decline in the Investment Bank operating expenses, which fell 22% Y-o-Y and comes as a reflection to the prudent measures taken to reduce the Investment Bank operating expenses. Meanwhile, the Commercial Bank operating expenses rose 4% Y-o-Y. At the end of the quarter, the Investment Bank represented 54% of total operating expenses, while the Commercial Bank accounted for the remaining, 46%.

During the quarter, the Investment Bank employees' expenses declined 14% Y-o-Y to EGP116 million. This decline was partially offset by an 11% increase in the Commercial Bank employees' expenses and thus resulted into a 6% decline in the Group's employees' expenses, which represents 72%, the bulk of the Group's operating expenses at the end of 3Q2011.

Other operating expenses declined 25% Y-o-Y to EGP78 million in 3Q2011, with the Investment Bank being the main contributor to the decline. The Investment Bank other operating expenses fell 41% Y-o-Y to EGP33 million, on the back of stringent cost saving measures, while the Commercial Bank declined 5% Y-o-Y to EGP45 million.

For the 9M2011, the Group's operating expenses came at EGP858 million and Group net operating profit margin reached 33%. Given that the Commercial Bank was consolidated only in 3Q2010, the Y-o-Y comparison is not indicative.

Table 4: Group Operating Expenses - 3Q2011

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Table 5: Group Operating Expenses - 3Q2011

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Table 6: Group Operating Expenses - 9M2011

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A. THE INVESTMENT BANK

I. Investment Bank Revenue

Table 7: Investment Bank Revenue

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The Investment Bank revenue declined 38% Y-o-Y to EGP150 million, reflecting lower revenue generated from capital markets & treasury operations and fee and commission business.

The disappearance of interest earned on sales proceeds of Bank Audi combined with unrealized losses on stocks was reflected in the capital markets & treasury operations revenue which declined 79% Y-o-Y to EGP12 million in 3Q2011.

Fee and commission revenue contracted by 26% Y-o-Y in 3Q2011, on the back of lower revenue generated from all business divisions, namely, Brokerage, Investment Banking, Private Equity and Asset Management.

For the 9M2011, the Investment Bank revenue declined 67% Y-o-Y to EGP541 million on the back of lower revenue generated across different divisions. However, excluding the one-off capital gain of EGP716.6 million from the sale of Bank Audi in 9M2010, the decline in revenue would be lower at 42%Y-o-Y. Capital markets and treasury operations revenue fell 79% Y-o-Y to EGP58 million (excluding the one-off capital gain of EGP716.6 million), this is explained by lower fx-gains and net interest earned in 9M2011 versus 9M2010. Fee and commission revenue declined 27% Y-o-Y to EGP483 million, largely due to the decline in revenue generated from Brokerage.

Fee and Commission Revenue

Fee and commission revenue fell 26% Y-o-Y to EGP138 million in 3Q2011, reflecting lower revenue generated from all business lines.

We believe the decline in revenue generated from different divisions showed resilience in the face of contracting volumes and poor market performance together with the persistent challenging situation on the regional political scene. That said, the decline of 35% Y-o-Y in Brokerage revenue came lower than the decline in the average aggregate regional volumes (excluding KSA), which fell -47% Y-o-Y.

Meanwhile, the Investment Banking revenue declined 31% Y-o-Y to EGP27 million on the back of lower advisory fees. The Private Equity revenue contacted 20% Y-o-Y to EGP31 million due to the disappearance of incentive fees. Asset Management revenue declined 5% as management fees declined.

 Figure 8: Brokerage Av. Daily Commission Figure 9: Asset Management AuMs

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Table 10: Fee and Commission Revenue - 3Q2011

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 http://www.rns-pdf.londonstockexchange.com/rns/1910S_-2011-11-16.pdf

For the 9M2011, fee and commission revenue declined 27% Y-o-Y to EGP483 million on the back of lower Brokerage, Investment Banking and Asset Management revenue. Brokerage revenue declined 39% to EGP177 million due to the sharp decline in trading volumes. Investment Banking revenue fell 34% to EGP95 million on the back of lower advisory fees. Asset Management revenue declined 10% to EGP100 million as management and incentive fees declined.

Table 11: Fee and Commission Revenue - 9M2011

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Fee and Commission Revenue - Brokerage

Regional market witnessed a very poor third quarter, given the seasonally quiet summer and the Holy month of Ramadan and Eid holidays falling this year in 3Q. This, combined with investors' bearish sentiment as the regional unrest persists, the low volumes and the lack of trading opportunities across all markets resulted in regional markets posting negative returns. The MSCI EM Index lost 23.2% over the quarter, while S&P Pan Arab Comp ML Index fell 7.7% over the same period.

Over the quarter, regional markets volumes dropped an average of 39% Q-o-Q, while Brokerage executions declined 31% Q-o-Q to USD3.9 billion, reflecting an improvement in our Brokerage market share. Consequently, Brokerage income fell 26% Q-o-Q to EGP46 million, lower than the decline in execution as margin interest income came higher Q-o-Q.

In 3Q2011, Brokerage revenue generated from retail business (which includes online, call center, branches, VIP individuals and HNWI) increased to 60%, mainly due to a decline in institutional business both Western and Regional. This reflects retail investors' engaging in short term trading in an attempt to cover for their previous losses, while institutional investors, both regional and foreign, preferring to adopt a wait-and-see approach.

Figure 12: Brokerage Revenue by Desk

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Egypt

Figure 13: Egypt Executions and Market Share

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Egypt's prolonged political upheaval together with the seasonally weak 3Q (due to summer and the Holy month of Ramadan), resulted in depressed market conditions. The Hermes Financial Index (HFI) fell 21.4% over the quarter and volumes declined 34% Q-o-Q. Retail investors continued to dominate trading activity on EGX, as foreign investors opted to stay on the sidelines. The continued negative news flow on selective listed stocks resulted in a series of retail margin calls, thus pushing the market down further. Foreign participation increased in 3Q, as foreign investors had to sell their shares in Olympic Group, post Electrolux acquisition.

EFG Hermes Egypt Brokerage market share rose to 44.3% in 3Q2011, as Brokerage executed the majority of the Electrolux/Olympic Group transaction, which represented a significant share of the total market turnover in September. Consequently, this underpinned our market share for the 9M2011 to reach 37.5%, with a #1 position on the EGX for the 3Q2011 and the 9M2011. Egypt Brokerage executions was 246% higher than the following broker in 3Q2011 (166% excluding the Olympic Group transaction), thus reflecting the dominant position of EFG Hermes in the market.

Egypt Brokerage revenue declined 20% Q-o-Q to EGP37 million. The increase in market share to 44.3% in 3Q2011 was due to the execution of the majority of the Electrolux/Olympic Group transaction which carries very low commission, thus reflecting the higher market share and the lower revenue. Moreover, Egypt's Brokerage contribution to total brokerage reached 79% in 3Q2011.

UAE

Figure 14: UAE Executions and Market Share

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In 3Q2011, volumes dried up on both the UAE markets, hitting very low levels seen only prior to 2005. Over the quarter, turnover on the Dubai Financial Market (DFM) more than halved, dropping 55%. Similarly, volumes on the Abu Dhabi Exchange (ADX) declined 44%. The Dubai Financial Market General Index (DFMGI) lost 5.6% and the Abu Dhabi Index (ADI) declined 6.3%, reflecting the weak markets performance in 3Q2011.

Despite challenging market conditions and the lack of trading opportunities, EFG Hermes managed to increase its market share on the DFM to reach 14.8% in 3Q2011 from 11.6% a quarter earlier due to increasing foreign activity. This takes the 9M2011 market share to 14.1% with number one ranking for the 9M2011. On the ADX, EFG Hermes market share improved to 12.5% from 11.8% in 2Q2011, as the 41% decline in executions was lower than the decline in market volumes. EFG Hermes maintained its third place on the ADX for the 9M2011.

Total revenue booked by the brokerage operations in the UAE (ADX and DFM) declined to EGP1.6 million in 3Q2011, down 74% Y-o-Y. Accordingly, UAE contribution to total brokerage revenue stood at 4%.

Saudi Arabia

Figure 15: KSA Executions and Market Share

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The Saudi Stock Market (Tadawul) saw a weak third quarter, especially with the summer season, the Holy month of Ramadan and the Eid holidays all falling during the 3Q2011. The Tadawul All Share Index (TASI) fell 7.1% and the market volume declined 40%.

EFG Hermes market share remained at 0.4% in 3Q2011, as the 42% decline in the Firm's executions was broadly in line with the decline in the market volumes. The low market share reflects the shrinkage in the swap volumes as well as the decline in the GCC clients' activities in the Saudi market.

Revenue generated during the quarter declined to EGP1.0 million, down 67% Y-o-Y. Saudi operations contribution to total brokerage revenue was 2% in 3Q2011.

Oman

Figure 16: Oman Executions and Market Share

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Given the investors' negative sentiment and lack of trading opportunities, the Muscat Securities Market (MSM) saw another poor quarter, with Muscat Securities Index losing 5.3% and turnover declining 34% over the quarter.

EFG Hermes increased its market share to 19.2% from 17.5% a quarter earlier, despite the poor market performance and the low volumes. This pushed our ranking to third position in 3Q2011 versus fourth place a quarter earlier and taking our overall ranking in 9M2011 to third position.

Revenue generated declined 44% Y-o-Y to EGP0.9 million, and overall contribution to total brokerage revenue stood at 2% in 3Q2011.

Kuwait

Figure 17: Kuwait Executions and Market Share

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Another muted quarter for the Kuwait Stock Exchange (KSE), with the KSE Index falling 6.1% and turnover declining 39% over the quarter. Indeed, turbulent political scenes in Kuwait with no clear signs of recovery as well as a relatively quiet seasonal summer and Ramadan period weighted down on market performance and activity, as most local investors including retail, HNW individuals or institutions opted to take the sidelines due to the lack of trading opportunities and low market liquidity levels.

EFG Hermes share of executions fell 40%, higher than the 34% decline in the market volumes, mainly due to a private transaction in September. Consequently, our market share declined to 23.4% in 3Q2011 from 24.0% a quarter earlier. However, we maintained our second place ranking for the 9M2011.

Revenue generated slipped to EGP5.1 million, down 51% Y-o-Y. However, Kuwait brokerage revenue contribution to total brokerage revenue was 11% in 3Q2011.

Jordan

Worsening economic outlook together with regional events negatively impacted the stock market performance and volumes, translated into the ASE Index losing 4.9% and turnover falling 26% over the quarter. However, our market share came at 6.9% in 3Q2011 versus 5.6% in 2Q2011; this supported our ranking, moving to 6th place in 3Q2011 and 10th place for the 9M2011.

Revenue booked from the Jordanian operation (EFG Hermes Jordan) amounted to EGP1.0 million in 3Q2011 versus EGP1.1 million in 2Q2011.

Research

Figure 18: Research Coverage Universe

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The Research department increased coverage by one company in 3Q2011, bringing the total number of companies' under coverage to 135 companies at the end of 3Q2011, distributed across the region (Egypt 32, UAE 24, KSA 38, Kuwait 7, Oman 18, Qatar 8, Lebanon 4, Morocco 3 and Jordan 1). Currently EFG Hermes covers 55% of the region market capitalization.

Moreover, the research department covers 11 economies from a macro-level and 8 countries in terms of regular strategy notes. In addition, the research team issues regular publications including daily morning round-ups, after end of session wrap-ups and a regional monthly product. A new product was launched this quarter, an Economic and Banking Monthly Data Watch by country, with Kuwait being the first country under this coverage.

Fee and Commission Revenue - Asset Management

Figure 19: Development of Listed Assets under Management

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EFG Hermes Asset Management AuMs declined 12% over the quarter to stand at USD3.2 billion at the end of 3Q2011. Redemptions represented 7% of the decline in the AuMs while markets performance represented the remaining 5%. Egypt fixed income funds, namely local money markets funds represented 76% of total redemptions in 3Q2011, and this is partially explained by clients' inclination to reduce foreign exchange risk through dollarization. The regional equity institutional funds represented another 14% of the redemptions, reflecting the increase in risk aversion by regional clients as concerns over a deteriorating global economic outlook led investors to sell out of equities.

During the first nine months of 2011, Asset Management AuMs fell 32%. The decline in AuMs is attributed in part to redemptions which represented 23% while poor markets performance represented the remaining 9%. Of the total redemptions, Egypt fixed income funds represented 80%, followed by redemptions in regional equity institutional funds which represented an additional 11%.

The strategy of targeting long term clients and increasing institutional base while maintaining diversified client base remains one of the Asset Management team main focuses. During the quarter, the team succeeded in expanding its Foundation/Pension/Insurance clients, rising to 38.1% of total AuMs versus 35.5% a quarter earlier. The Institutional clients declined slightly to 23.1% from 24.0% at the end of 2Q2011. The SWF clients' contribution to the total AuMs, was unchanged at 21.4%.

In terms of funds' origination, the team maintained its diversified fund sourcing options with MENA-based clients being the main contributor. The investors' mix changed slightly in 3Q2011, MENA-based clients increased to 73.2% from 70.6% a quarter earlier on the account of both Europe and USA clients, with the former declining to 22.3% from 23.7% a quarter earlier and the latter declining to 3.8% from 4.8%.

Figure 20: Assets under Management by Geography

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For the equity and fixed income portfolios (Egypt and regional), the team continues to pursue new mandates with the client base split between insurance companies, banks, regional HNWI/Family Office and SWF. The team believes that during the recent decline, there is a case to be made on the resiliency of the region at current levels, given the outperformance of the region versus other developed markets.

Fee and Commission Revenue - Private Equity

Private Equity AuMs stood at USD1,114 million at the end of 3Q2011, with no exits made during the quarter. During the quarter, the team has been actively evaluating investment opportunities in different sectors in Egypt and the region and conducted an investor roadshow in the Gulf to provide update on current investment dynamics and developments in Egypt. During the quarter, the team made commitments to two new infrastructure investments that should reach financial close between 1Q2012 and 2Q2012.

Fee and Commission Revenue - Investment Banking

Our investment banking division continued to perform relatively well during the third quarter of 2011. In spite of continuing adverse conditions across a number of the markets that we operate in, we managed to close our third transaction this year in the Egyptian market advising on the sale of Olympic Group, Egypt's largest white goods manufacturer to Electrolux, the world's second largest manufacturer of household products. This USD452 million transaction was the largest in Egypt this year and was a clear testament of our growing ability as an M&A house to navigate very difficult market conditions to try to finalize a transaction. The closing of the Olympic Group transaction brings the total transactions that our investment banking department closed this year to three.

Over the past three months, we have also increased our pitching activity quite significantly in an attempt to build up our pipeline for 2012. Our pitching activity is focusing on Egypt, the GCC and Levant regions where frequent trips to new clients are being organized in order to strengthen our business franchise there. As a result of this focused pitching activity, we have been able to secure a number of very important mandates in Egypt and Lebanon in addition to positioning ourselves for a number of opportunities in Jordan, Qatar and the UAE. In addition, our mandates and pitches have focused on industries that are relatively defensive in nature and where there continues to be demand for equity stakes whether in a private placement or M&A context. Naturally, our ability to execute those mandates remains largely a function of market conditions and the overall stability of the region. However, it is our opinion that building a healthy pipeline is crucial at this juncture of the year and therefore it is our intention to maintain this pitching intensity during the coming period in order to secure enough business for the department over the next year.

Capital Markets and Treasury Operations Revenue

Table 21: Capital Markets and Treasury Operations Revenue

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Capital markets & treasury operations revenue fell 79% Y-o-Y to EGP12 million on the back of lower net interest income and returns on investments.

The decline in net interest income of 73% Y-o-Y is mainly due to a decline in net interest earned, which fell to EGP9.0 million in 3Q2011 from EGP31.2 million in 3Q2010. The lower net interest earned in 3Q2011 mainly reflects the disappearance of interest earned on the sales proceeds of Bank Audi as compared to 3Q2010.

The returns on investments declined to EGP3.1 million from EGP24.3 million in 3Q2010, mainly on the back of unrealized losses on stocks of EGP4.1 million in 3Q2011 versus unrealized gains of EGP22.0 million in 3Q2010. However, this was offset by realized capital gains on stock of EGP6.3 million.

For the 9M2011, capital markets and treasury operations revenue fell 79% to EGP58 million (excluding the one-off capital gain of EGP716.6 million), reflecting high comparative base, 9M2010. Fx-gains came at EGP105.6 million and net interest earned reached EGP127.4 million in 9M2010, relating mainly to the sales proceeds of Bank Audi. While fx-gains and net interest earned came at EGP5.5 million and EGP30.1 million in 9M2011, respectively, as the purchase of Credit Libanais's was completed in November, 2010.

II. Investment Bank Operating Expenses

Table 22: Investment Bank Operating Expenses - 3Q2011

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Table 23: Investment Bank Operating Expenses - 3Q2011

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Table 24: Investment Bank Operating Expenses - 9M2011

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The third quarter was another successful quarter for the management team, further reducing operating expenses by 22% Y-o-Y and 14% Q-o-Q to EGP149 million, on the back of headcount reduction, 3% Q-o-Q and 8% Y-o-Y, together with cost reduction across all operating expense lines. Consequently, 9M2011 total operating expenses fell 19% to EGP485 million.

In 3Q2011, operating expenses fell 22% Y-o-Y on the back of 14% Y-o-Y decline in employees' expenses and 41% Y-o-Y decline in other operating expenses. The decline in employees' expenses was due to headcount reduction, voluntary cut taken by some of the senior management, and reduction made to some employees' packages.

Other operating expenses which includes occupancy expenses, office expenses, communication expenses (data and telecommunication), travel and marketing expenses, promotion and advertising expenses and consultant and service fees declined 41% Y-o-Y in 3Q2011.

Travel expenses fell 19% to EGP4.4 million on the back of tighter travel policy. Promotional and advertising expenses rose 7% Y-o-Y to EGP3.4 million mainly due to higher events and planning costs.

Data communication expense rose 15% Y-o-Y to EGP8.2 million. The telephone/fax/mobile expense declined 2% Y-o-Y to EGP2.4 million and office expense declined 1% Y-o-Y to EGP5.3 million. General expenses declined 93% to EGP0.5 million from EGP7.2 million a year earlier on the back of the disappearance of intercompany interest expense and donations. Occupancy expense was flat at EGP13.8 million.

For the 9M2011, operating expenses fell 19% Y-o-Y to EGP485 million, with employees' expenses falling 15% Y-o-Y to EGP345 million and other operating expenses declining 26% Y-o-Y to EGP139 million. The decline in operating expenses reflect headcount reduction, voluntary cut taken by some of the senior management, and the cost cutting measures seen across all operating expenses.

B. THE COMMERCIAL BANK

Table 25: Commercial Bank Key Financial Highlights and Ratios

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Credit Libanais reported net income for 3Q2011 of USD16.7 million, an increase of 4.1% Q-o-Q.

The systematic reduction in the cost of deposits, the re-deployment of excess cash generated by maturing securities, strong loan growth, continued success in bad debt collections and effective containment of general expenses, resulted in off-setting, to a great extent, the loss of net interest income from maturing high coupon fixed income securities as well as the mark-to-market loss in the group's trading portfolios.

In particular NIM, when looked at on a monthly basis, after a steady decline for nine consecutive months in 2011, reversed this trend for the first time in September, reflecting the effectiveness of the measures to contain interest expense, the effective redeployment of excess cash and the steady loan growth.

3Q2011 RESULT HIGHLIGHTS

·; Total loans reached USD1.9 billion, an increase of 3.2% Q-o-Q and 21.8% Y-o-Y.

·; Total deposits reached USD6.2 billion, an increase of 3.1% Q-o-Q and 12.1% Y-o-Y.

·; Net interest income reached USD28.3 million, a decline of 9.3% Q-o-Q and 12.7% Y-o-Y.

·; Fee & commission reached USD9.1 million, an increase of 46.6% Q-o-Q and 0.6% Y-o-Y.

·; Trading income reached USD1.7 million, a decline of 22.1% Q-o-Q and 35.7% Y-o-Y.

·; Credit loss expense showed a recovery of USD2.6 million, a 116% increase Q-o-Q.

·; Net operating income reached USD41.9 million, a 1.7% increase Q-o-Q and a 7.5% decline Y-o-Y.

·; General expenses reached USD7.6 million, a decline of 4.9% Q-o-Q and 9.0% Y-o-Y.

·; Net income reached USD16.7 million, an increase of 4.1% Q-o-Q and a decline of 18.4% Y-o-Y.

·; Loans/deposits ratio reached 31.1%, flat Q-o-Q and a 2.5% increase Y-o-Y.

COMMENTS ON RESULTS

Loans: Total loans grew 21.8% Y-o-Y, 3.2% Q-o-Q and 16.4% YTD, well above the Lebanese banking industry average. In particular YTD, retail loans have grown 9.6%, SME loans by 16.5% YTD and corporate loans 20.9% YTD. This reflects the strategic emphasis to grow faster the corporate and SME books and restrain growth in the retail portfolio due to the overall current economic conditions. This strategy has also resulted in the re-balancing of our portfolio which is now distributed almost equally between retail and corporate, with SME lending representing about 16%.

Lending yields have remained steady between August and September, at a blended level of 7.57%

Deposits: Total deposits grew 12.1% Y-o-Y, 3.1% Q-o-Q and 9.9% YTD, almost double the rate of growth of deposits for Lebanese banks in the same period. In particular YTD, sight deposits have grown by 8.6%, savings by 9.1% and term by 12.7%. Although deposits have increased on a Q-o-Q basis, deposit balances in September were lower than August as a result of our initiative to reduce the cost of deposits.

Within this initiative the average cost of deposits in local currency (LP) declined from 5.61% in August to 5.31% in September. Similarly the average cost of foreign currency (FC) deposits declined from 2.86% to 2.70% in the same period.

As a result the blended cost of deposits declined to 3.93% in September from 4.14% in August. This is estimated to reduce interest expense by an average of USD0.3 million per month, going forward.

Loans/Deposits Ratio: As a result of the higher rate of Loan growth to deposits, the loan/deposits ratio continued its steady increase reaching 31.1%, flat Q-o-Q and a 2.5% increase Y-o-Y.

Net Interest Income: More effective placement of excess cash generated from redeemed securities and the initiative to reduce the cost of funding have affected positively only the last month of the quarter. As such, the combined effect of these net interest income boosting initiatives will be captured in full in 4Q2011. 

Fee & Commission: F&C came in roughly stable Y-o-Y but showed a 46% increase Q-o-Q, mainly due to a USD0.7 million gain from the sale of property and fewer re-insurance premium charges, as well as fewer claim payouts compared to 2Q2011 (base effect).

Trading Income: Trading income reached USD1.7 million, a decline of 22.1% Q-o-Q and 35.7% Y-o-Y.

The main reason for such decline is the USD1.5 million mark-to-market loss in the Credit Libanais Group trading portfolio in September, bringing the YTD mark-to-market loss of the USD77 million trading portfolio to USD2.8 million. (Of this, USD1.9 million is from the perpetual securities and senior obligations of EU financial institutions and USD0.9 million from Lebanese listed stocks).

Credit Loss Expense: Another quarter of superior collections, resulted in a 'positive' entry of USD2.6 million, boosting Net operating Income.

Expenses: Continued successful containment of general operating expenses resulted in a Q-o-Q decline of 4.9% Q-o-Q and 9.0% Y-o-Y.

Net Income: The above resulted in a Q-o-Q increase of 4.1%. The Y-o-Y decline of 18.4% is mainly due to last year's large one-off profits from the sale of real estate.

Cost/Income Ratio: The ratio returned to the over 54% level, mainly due to the impact of the USD1.5 million mark-to-market loss in the trading portfolio.

Net Interest Margin: NIM for the quarter declined further to 1.78%, but September was a turning point as NIM for August was 1.73%. This reversal will continue in the months to come as a result of most of the initiatives described above.

Click on, or paste the following link into your web browser, to view the associated PDF document

 http://www.rns-pdf.londonstockexchange.com/rns/1910S_1-2011-11-16.pdf

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In this earnings release EFG Hermes may make forward looking statements, including, for example, statements about management's expectations, strategic objectives, growth opportunities and business prospects. Such forward looking statements by their nature may involve a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from those expressed or implied by these statements. Examples may include financial market volatility; actions and initiatives taken by current and potential competitors; general economic conditions; and the effect of current, pending and future legislation, regulations and regulatory actions. Furthermore, forward looking statements contained in this document that reference past trends or activities should not be taken as a representation that such trends or activities will continue. EFG Hermes does not undertake any obligation to update or revise any forward looking statements.

Accordingly, readers are cautioned not to place undue reliance on forward looking statements, which speak only as of the date on which they are made.

This document is provided for informational purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any securities or interests described within it in any jurisdiction. We strongly advise potential investors to seek financial guidance when determining whether an investment is appropriate to their needs.

EFG Hermes Holding SAE has its address at Building No. B129, Phase 3, Smart Village - km 28 Cairo Alexandria Desert Road, 6 October and has an issued capital of EGP 1,939,320,000.

المجموعة المالية هيرميس القابضة شركة مساهمة القرية الذكية مبنى 129ب، المرحلة الثالثة، السادس من أكتوبررأس المال المصدر: 1,939,320,000 جم

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Stock Exchange & Symbol:

Cairo: HRHO.CALondon: HRHOq.LBloomberg: EFGHReuters pages: . EFGS .HRMS .EFGI .HFISMCAP .HFIDOM

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EFG Hermes (Holding Main Office)

Building No. B129, Phase 3, Smart Village - km 28 Cairo Alexandria Desert Road, 6 October Egypt 12577

Tel +20 2 353 56 499

Fax +20 2 353 70 942

efghermes.com