The growth in net interest income and operating income by 23% and 1% respectively mitigated the decline in gross earnings. The effective management of cost-to-income ratio, cost of funds and cost of risk offset top-line declines to deliver an enhanced operating income in the period.
Our risk and asset quality continues to improve as cost of risk dropped significantly by 52% from 0.9% in the prior year to 0.4% for the period. This was achieved as impairment charges declined by 54% (₦2.5 billion year on year reduction). Our cost of funds also improved, declining by 25% from 4% in Q1 2018 to 3% at quarter-end. This was supported by a 22% decrease in interest expense of ₦10 billion over the same period, affirming the Group’s robust treasury and liquidity management. Our prudent cost management led to a 5% decline in our cost-to-income ratio by 5% from 53.3% in 2018 to 50.9% in the period with an absolute reduction in operating expenses by ₦2.3 billion year-on-year.
The Group’s retail franchise continues to increase as retail deposits grew by N80bn between December 2018 and March 2019 representing a 9% growth notwithstanding the fact that total customer deposits dropped marginally by 3%. The drop in customer deposits was as a result of rebalancing of the deposit mix as expensive purchased deposits were forgone in favour of cheaper and stickier retail deposits.
The volume and value of transactions across our electronic and digital platforms continue to grow as new customers are being acquired. Our balance sheet continues to strengthen as liquidity ratio is at 66.7%, loan to deposit ratio closed at 43%, and capital adequacy ratio ended the period at 25% respectively and remain above the relevant regulatory thresholds as at 31 March 2019.
Going into the rest of the year and with improving economic fundamentals, we are confident of delivering value to all our stakeholders on our commitments even as we create more opportunities for businesses by supporting them through selective risk asset creation. We shall continue our investments in the retail segment of the market as we consolidate our leadership position in the corporate segment while maintaining a strong balance sheet.
Financial Highlights
| In millions of Naira | |||
| Income statement | 31-Mar-19 | 31-Mar-18 | % Change |
| Gross earnings | 158,111 | 169,192 | -7% |
| Interest and similar income | 122,480 | 116,712 | 5% |
| Net interest income | 86,137 | 69,992 | 23% |
| Operating income | 116,697 | 115,702 | 1% |
| Operating expenses | (59,404) | (61,701) | -4% |
| Profit before tax | 57,293 | 54,001 | 6% |
| Profit after tax | 50,234 | 47,079 | 7% |
| Earnings Per share (N) | 1.60 | 1.50 | 7% |
| Balance sheet | 31-Mar-19 | 31-Dec-18 | % Change |
| Gross loans and advances | 1,938,432 | 2,016,520 | -4% |
| Customer deposits | 3,571,370 | 3,690,295 | -3% |
| Total assets | 5,877,451 | 5,955,710 | -1% |
| Shareholders’ fund | 780,887 | 815,751 | -4% |
| Key ratios | 31-Mar-19 | 31-Mar-18 | % Change |
| Return on average equity (ROAE) | 25.2% | 24.3% | 4% |
| Return on average assets (ROAA) | 3.4% | 3.3% | 4% |
| Net interest margin (NIM) | 8.9% | 9.3% | -4% |
| Cost of funds | 3.0% | 4.0% | -25% |
| Cost of risk | 0.4% | 0.9% | -56% |
| Cost-to-income | 50.9% | 53.3% | -5% |
| 31-Mar-19 | 31-Dec-18 | % Change | |
| Liquidity ratio | 66.7% | 69.7% | -4% |
| Loan to deposit ratio | 43.0% | 44.2% | -3% |
| Capital adequacy ratio (CAR) | 25.0% | 25.0% | 0% |
| Non performing loan | 4.85% | 4.98% | -3% |