As-salamu alaykum, and good evening. This is Selim Hussain. I'm the managing director of BRAC Bank, and I'm welcoming you, everybody from all around the world, to BRAC Bank's first quarter earnings disclosure program. We're located here in Dhaka, Bangladesh, and it is 8:00 P.M. Dear viewers, this is a live webcast in our earnings disclosure portal, and this link has been shared with different relevant stakeholders through advertisement, website post, Facebook post. We also are going live with this presentation on our Facebook page. Shall we start? Deb? Thank you. Next slide, please. Next slide, please. Thank you. The usual forward-looking statements with inherent risks and uncertainties, the normal disclosures. What we have for you today is a shortened program. We expect to complete everything within one hour's time.
This is the first quarter 2023 results. We're also cognizant of the fact that we had a similar program for the full year 2022 just about two weeks ago, so we will not take too much of your time today. We'll start off with an economic update, a market update. We'll quickly look through the SME retail corporate businesses, Treasury and Financial Institutions, give you an update on risk management, look at the financial performance, get an update on bKash, and then move into a Q&A session where we will try to answer as many of your questions as possible. As I said, the expectation is that we will finish everything in one hour's time. Deb, the next slide. I'll hand over to our Treasurer, Shaheen Iqbal, Deputy Managing Director and Head of Treasury and Financial Institutions. Shaheen.
Thank you, Selim Bhai. Good evening, everyone. Bangladesh is facing significant challenges in terms of managing its inflation, like many other countries. As inflation has become a major challenge, like, we are expecting a new monetary policy in July, whereby central bank has indicated that they're going to address some of the key challenges in terms of interest rate and exchange rate. We really have to look into those policies. In our view, like, both central bank and government has taken seriously to contain inflation and overall economic management. In general, like, on interest rate side, would you expect to see interest rate moving upward and exchange again really under pressure.
This might continue to remain as it is until end of this year because, there are a lot of pressure in terms of import and other challenges. In general, like, both exchange and liquidity is a big challenge for the year. Within this challenging condition, we are navigating, in a quite challenging environment. That's my view on overall economy and the market. Thank you, Salim Bhai. Back to you.
Thanks, Shaheen. may I just add to what our treasurer, Shaheen Iqbal, said a little while earlier. I think the overall situation in the month of May is actually much better than it has been over the last six or seven months, and I'm referring to particularly to the foreign exchange liquidity situation. The market, from what we hear from our correspondent banking partners, all across the world, has improved significantly. The number of payment deferrals or delays has improved markedly. Overall, the exchange rate situation is a lot better than it was, particularly last year. The expectation also is that there will be a gradual move to a more market-based exchange rate and interest rates over the next few months as well. We'll talk more about that later on.
Let's move now to the first of our business highlights and Tomal Syed Abdul Momen. Tomal, the Head of SME Banking Division and Deputy Managing Director, will update us on his business.
Thank you. Thank you, Selim Bhai. The SME business has also done pretty well during Q1, despite the challenges mentioned by Shaheen Bhai, the economic challenges. I think the SME segment has been quite resilient, specifically the segment that we operate in, the small business segment. A lot of resilience is being shown by this segment. If you see that our customer numbers have grown by 22% compared to since December, and if I compare it with March, it is like a 19% increase on the customer numbers.
As we mentioned earlier, during our yearly disclosure that our deposit engine has started in full flow, You can see that there is a 23% increase in our SME deposits also, which is not usually happens in earlier years. We expect the SME deposits to grow even more during the remainder of the year. However, the CASA mix due to the market condition and there is an increase in our cost of deposits. If you see, it was higher than by 64 bps if I compare it with March 2023-2022. If I compare it with December, then it has increased by only 9 bps. In terms of the growth in asset portfolio, yes, the momentum that we have built in 2022 has continued. In 2023, the momentum is even higher.
You can see there is a 28% growth since December, and obviously the small business is the main growth engine, and they have grown by more than 35%. Even with this growth, the portfolio quality continues to improve. The PAR has decreased by 50 bps, and also NPL has decreased by 20 bps since December 2022. Our trade volume also continues to grow despite the challenging market conditions. That's all from SME, Selim bhai. Thank you.
Thanks very much, Tomal. Key takeaways from the SME update. One, asset growth continues to be very strong. Two, the portfolio quality continues to improve, quite significantly, I might add, over the last three months. Three, the deposit mobilization engine is really just starting to generate dividends. You will hear a lot more about this next quarter, but a number of new products and new structures in the deposit mobilization effort are now we can see starting to generate good dividend. We'll talk about that more as we go through the slides. Thanks again, Tomal. Let's move to retail banking. Mahiul Islam, Head of Retail Banking Division.
Thank you, Selim bhai. Good evening. In retail banking, we had good momentum in customer acquisition and cards business during first quarter of 2023. Our customer numbers grew by 16%. This quarter we crossed the one million mark. In terms of customer deposits, we also continue to grow sustainably at 20% year-on-year with BDT 3,300 crore net growth. Even if you compare with last quarter, it has grown by 5%, sustaining the annualized growth rate of 20%. Our customer assets growth, while it was moderate at 9% year-on-year, with BDT 611 crore net growth, this was mainly due to rising inflation, where we have tightened our risk parameters from second half of last year.
We have started to ramp up our asset acquisition, keeping in line with our risk appetite. We continued our strong momentum on portfolio or strong monitoring on portfolio and collection efforts that resulted in both PAR and NPL reductions year-on-year. Compared to last quarter, we have observed bit of stress in our portfolio, and we are taking additional measures accordingly. Credit cards continues to be a success story for us, and its portfolio grew by 28% year-on-year, and our merchant acquiring volumes have also grown significantly by 53%. In terms of remittance business, our volumes have grown by 65% year-on-year, and compared to last quarter, we have observed significant growth of 101% due to a stable market environment.
Another good news is BRAC Saajan, which is our subsidiary based in U.K., they have successfully resumed its business starting from early this year. That's all from my side. Thank you.
Thanks, Mahi. Important takeaways from the retail banking update. Customer numbers are growing consistently. Customer deposits growing very, very nicely again. Customer assets slightly slowed down, but that's a conscious decision in the current high inflation environment. Mahi did mention that from May onwards we're starting to ramp up the customer acquisition in retail lending. Very satisfactory progress in the credit card and debit card business. Acquiring, issuing, volumes have been very, very satisfactory, and the remittance business is also starting to grow very nicely. Thanks, Mahi. Let's move to Tareq Refat Ullah, our Deputy Managing Director and Head of Corporate Banking Division.
Thank you, Selim bhai. Dear valued audience, asalam alaikum and a very good evening to you all. Our quarter one results are consistently positive and in line with our growth aspiration. We have achieved growth in deposit for 25% year-on-year, and in asset for even higher, which is 50% year-on-year. All of our channels vibrantly work together to mobilize liquidity, and as a result, we have achieved a phenomenal growth in deposit year-on-year. However, in the first quarter of 2023, we offloaded a portion of high-cost deposits, and that actually adjusted the growth momentum for the time being, which has also helped us to reduce our cost of deposit by 123 basis points in quarter one, 2023.
Our remarkable asset and trade growth was possible because of our stronger liquidity in terms of both foreign currency and local currency. Please also note that we have continued onboarding new relationships in line with our risk appetites, and that has helped us to grow our portfolio as well.
Although our portfolio quality improved significantly year- on- year, you can see on the slide clearly. There is a slide in quarter one 2023 compared to December 2022. This has escalated from the stress portfolio which were under forbearance support during the COVID period. This is not a surprise, as we are also expecting this expected slide from this portfolio as well. In conclusion, we expect to remain major partner bank of our value clients, and we also continue to grow the momentum in the coming periods as well in line with our growth strategy. Thank you all. This is all from Corporate Banking division. Over to you, Selim Bhai.
Thanks, Tareq. Again, key takeaways, good growth in both deposits and loans, particularly compared year-on-year to Q1 2022. Even if you look at the last quarter or the trailing quarter, Q1 2023 compared to December 2022, you will see that loans have grown very nicely at 18%+. Deposits a little less so, but that, as Tareq mentioned, is because a number of more expensive deposits were exited. A slight deterioration in NPL, but again, as Tariq mentioned, this is already managed and accommodated in our debt provisioning and in reality, these are not surprises. Overall, a pretty good first quarter for Corporate Banking Division. Let's move now to the Treasury and Financial Institutions space, and we will get an update from Shaheen Iqbal, our Deputy Managing Director and Head of Treasury in FI.
Thank you, Selim Bhai. I think, as Tareq Bhai mentioned, like our Head of Corporate Banking, like we were really reducing our various risk, concentration risk, and also we were diversifying our portfolio both in deposits, at the same time we are doing in loans. On the deposit side, like we. At the same time, we were very liquid, and also we diversified away from any concentration risk that we had. This is a great success for the bank, and also we have significantly reduced our risk in terms of contagion. Like we have reduced our risks on loans and FI significantly so that we are safe from any contagion risk as well. Overall, the bank is very liquid in a very sustainable manner. We also reduced our risk through reduction of the duration of government securities.
Overall, Bank's balance sheet is in a very well, it's very well-positioned, and I think we can really grab market opportunities going forward as well. On the market side, we continue to lead the market in making market in FX and other securities as well. Also, we have done few landmark deals, like we have signed a $100 million long-term facility with JICA in the first quarter. I think overall, our achievement in both foreign currency, local currency and overall market making was really praiseworthy. That's all. Thank you.
Thanks, Shaheen. Let's move now to risk management and listen to our Head of Credit Risk Management, Ahmed Rashid Joy.
Thank you, Selim Bhai. Hello, everyone. We ended the first quarter of 2023 with NPL ratio of 3.7% and 30 DPD PAR ratio of 4.1%, as you can see. Now, if we look this on quarter-to-quarter basis for the last one year and even on annual basis since 2017, we will find that the NPL ratio is quite static, which is now hovering around 4% level. However, our 30 DPD PAR ratio, refer to the green curve, has improved gradually. It declined from pre-pandemic level of 6%, which was in 2018 and, you know, beyond that, to present level of 4%. 30 DPD PAR has improved a lot, I would say. Next slide. In Q1 2023, our NPL coverage ratio was 111%.
During same period, the bank's cost of credit was 70 bps, which is basically 16 bps higher than the previous quarter. We incurred this higher credit cost just to maintain our strategic level NPL coverage ratio of 110%, and that's what we intend to continue. We will maintain this level of 110%. In brief, I would say that with better underwriting decisions and strong performance from our collection team in recent years, our asset quality remain under check. It's under control. The portfolio is very much under control. That's it from my side. Thank you.
Thanks, Joy. Deb, can we move back one slide? I would just like to highlight something in this particular slide, ladies and gentlemen. If you look at the PAR level in the first quarter of 2023, you'll see that PAR figure is pretty similar to that in 2019. That gives you a very good sense because a 30-day DPD or 30-day PAR is probably the highest level of non-performing assets in any financial institution. Ours, today, as at end of Q1, is pretty similar to that four years ago. It gives you a sense of how well the portfolio has been managed even during these very difficult times. You will also understand, I'm sure recognize, that the portfolio itself has grown very significantly in the last four years. I'm talking of the overall asset volumes. Thanks.
Let's move to the financials. And what I'll do is actually show you a few slides where we compare Q1 2023 results to the first quarter of 2022 and the first quarter of 2021 as well. So over the last three years, you can see how all three segments have grown continuously. This gives you a sense over the last three years how the first quarter growth for 2023 has panned out. If you look at the next slide, what we're trying to do here is give you a sense of Q1 2023 compared to the last one year. So you have the first quarter of 2022, the second quarter of 2022, the third quarter, and the fourt quarter of 2022. On the left-hand side, you have the whole bank.
The green piece is SME, retail is blue, corporate is golden. If you look at them, you'll see that there is a consistent growth in customer deposits across all three segments. It is accelerated in retail, which is our main deposit mobilization engine, but it has also started very well in SME. Of course, corporate is also very large and is, the corporate banking division in BRAC Bank is very much self-funded. Let's move to the next slide. Again, giving you a sense of our CASA balances. In March 2023, they compare well with last year, 53% CASA, but obviously less than what it was back in 2021 when it was an all-time high of 58%. Next slide. Again, what we're doing here is showing you three years comparison of customer loans.
You can see in all three segments there is continuous growth. This is comparison of the first quarter of 2023 to the first quarter of 2022 and then the first quarter of 2021. The next slide actually is a comparison of the trailing four quarters. Here again, you will see good growth in all three segments. Corporate in particular has grown quite strongly. But SME too, if you look at year- on- year, it is growing very, very strongly as well. Retail is relatively flat, but that is a conscious decision that we've taken in terms of the high inflation rates and the impact thereof on individual customer disposable surpluses. That was a conscious decision.
I would like to repeat what our head of retail banking said earlier, that from May onwards we intend to open up the sluice gates and start growing retail assets again. Otherwise, growth is driven more or less by all segments and is well aligned to strategy. Next slide. I'll ask our CFO and Deputy Managing Director, Masud Rana, to take over now and take us through the actual financials. Masud.
Thank you, Selim Bhai. Good evening and a s-salamu alaykum to you all. As you heard from our MD and our business heads, we have had a fantastic Q1. Our balance sheet has grown and this is the first quarter, but I think the morning shows the day. We have a, you know, good plan for this year. As we continue to continue the momentum of 2022, it really reflects in our numbers. Like, as you can see, on an annualized basis, our deposit has grown about 16%. On the other hand, loan has grown about 20%. Our balance sheet itself has grown by about 12%, so does our capital, the regulatory capital itself. The revenue, year-on-year it's about 13% higher.
If we look at the profit after tax, the bottom line, it's almost flat. I'll explain it a bit later, but yes, of course. Fundamentally, if you look at, we believe the way we have been, you know, approaching this business and designing this business, we are quite happy with the, you know, proceeding of the first quarter. Yes, we heard from our treasurer the economic condition, the business environment. Given all that, I think it's a pretty good results, a very good set of numbers. If we look at the return on equity, yes, it has been a bit soft, both return from assets and return from equity.
As I say, our regulatory capital has grown by about 12%, while our profit has been flat, so therefore that dip in the these two return metric. While EPS has grown slightly year-on-year, and as we, you know, heard from our Head of Credit, we may use, you know, intend to maintain a coverage of 110% going forward. We maintain that, and as a result, there have been some, you know, slightly higher cost of credit in the particularly first quarter. The cost to income ratio, yes, it is 61%, but we need to, you know, mindful of the some, you know, regulatory requirement, particularly on the OpEx side. Our staff cost has grown, which was not there.
On a like-to-like basis, it would have been, you know, really 57%-58%. At the same time, the cost of fund has also grown significantly if we compare with the last quarter, last year's quarter. Our capital adequacy is 13.8%. As you all know, it's predominantly led by the core capital tier one. Our NAV has grown about Taka 1. We maintain more or less similar and continued with that spread of 4 point... slightly over 4%. If we look at the standalone, the standalone performance P&L, I'd like to quickly, you know... Next slide, please, Deb. We try to, you know, capture the year-on-year and as well as the trailing quarter, the Q1.
The way we are, you know, what I am very interested and very pleased to, you know, share that our revenue has grown. If you see 13% year-on-year. However, on a, you know, quarter-to-quarter, like the fourth quarter of the last year, it has been flat. On an underlying basis, the business is, you know, has grown. In a sense, generally the fourth quarter and first quarter is not comparable. We all know, I mean, as a professional banker. If we look at on an underlying basis, it has grown about by 6%-7%. With that, with that, you know, the cost of fund going up. Like if we look at our year-on-year, our revenue has grown. The NII has grown about 13%.
At the same time, the non-funded income has also grown by about the same amount. There are some one-offs, which were kind of, you know, balancing each other. Like, we observe a subdued return from the fixed income portion, like the G-Secs, government securities and also, you know, capital market is kind of a flat. While yes, the outlook suggests that the interest should go up and accordingly we should expect a better return, and we have, as Selim mentioned, we are actually, you know, working at addressing those tenor adjustments so that we can, you know, accordingly adjust with the risk.
I think, the major, you know, key year-over-year and, you know, comparison, the cost has been grown by about 20% with a 7% negative delta. As I said, last year, the same period, we did not have that kind of a, you know, staff cost dimension that we have now. On the other hand, not to, you know, forget about the inflation that has translated. I think, if I look at the numbers across the market, across the industry, I think that's quite evident that, in the OpEx, everybody has that pressure and that will be a challenge how we would, you know, manage and, you know, do our business going forward.
I think what is important here is that the way we are designing our business. Generally, Q1 is subdued quarter for us. I think most of the player in the industry. For last couple of years we have been trying to design it so that it gives a kind of a consistent return over across the quarters. The way we have planned is, you will see in the coming quarters it will grow. I mean, if everything remains as we have, you know, planned for and, you know, with the conducive environment, of course. We expect to see this in going quarters, it should grow and, you know, increase. If we look at the consolidated numbers, the next slide.
I think balance sheet, as I said, it has done quite satisfactorily, with, given all that. Move to the consolidated number. The deposit here is 20% annualized growth. On the loan side, 20%, more or less similar to the bank level. Revenue is 22%, thanks to our major subsidiary, bKash, which has, you know, given this 9% delta here. If we look at the PAT, bKash has good story to, you know, share with you. I'm sure, you know, Moin vai has joined. We'll listen to him. Overall, in terms of balance sheet sizes has grown on an annualized basis 16%. To be mentioned, I think very strong capital adequacy at a group level.
Cost to income ratio since, you know, our subsidiaries, particularly bKash has done well, our cost to income ratio at the group level has improved. I think if we look at our share of our subsidiaries. The next slide, please. This is the first quarter snapshot of our overall subsidiaries' shares. Understandably, first quarter has been very subdued in terms of the capital market players, so which is reflective of the results of our two subsidiaries, both merchant bank and the brokerage firm. We have taken measures. I think, relative to the market, this is good results.
Going forward, if the market play and gets into a, you know, a better condition, we should be the, you know, the firms who get the most of the benefits. Looking at this, I think I'll request Moin vai to, you know, shed some light on Q1 performance of bKash. Moin vai, over to you.
Right. Thank you, Masud vai. good evening to all of you. just continuing with what Masud vai just mentioned, bKash, we had the best ever quarter in terms of volumes and profits. before I start off, I'll just quickly take you to six health parameters of bKash. The first one being number of customers. Registered customer base at the end of first quarter 2023 was 67.9, which is up by 7.6 million over the same time last year. Active ratio, active clients, is 39.6 Of the 67.9, 39.6 million were active, which is about 58%. It's a significantly high number comparable...
If you compare with other similar players across the globe, this is a very respectable number of 58% being active. In terms of market share, we gained marginally by 0.3%. At the backdrop of stiff competition, our market share let's say remained... We held on to our market share. In terms of merchants, we were 293,000 merchants were accepting bKash, which is... This is up by 25,000 merchants year- on- year. Average monthly transaction volume, we clocked BDT 671 billion of average monthly transactions for the first quarter, which was up by 23% year- on- year.
In terms of agent points, which is one of our biggest assets, we were at 352,000 or 353,000 agents spread across the country, and we added about 75,000 agents more, same time last year. All in all the indices are looking up. They're looking north. Moving on to our financials. Deb, if you could move to the next slide, please. Yeah. If you look at gross revenue, let me start off with net revenue. That's after taking off VAT. Net revenue increased by 25%, at the backdrop of volumes increasing by 23%, as I mentioned earlier. Our net revenue increased by 23%, which is a very respectable, healthy growth. Cost of services was BDT 697 crore.
Cost of services as a percentage of net revenue was 71%. If you look at the same time last year, it was 77%. Gradually, and because of the product mix, our gross profit is increasing. Our gross profit at, in the first quarter of 2023 was 29%, whilst same time last year it was 23%. We had a solid 5% increase in gross profit. As I said, a couple of factors. One is the We are seeing that people our cost of funds is lower. If you source funds from alternative sources like banks or cards, our source it's lower. We are also gradually rationalizing the commission that we pay to the channels. Both of them put together our effective gross profit increases.
In terms of expenses, operating expenses was BDT 199 crore as opposed to BDT 173 crore. The basic driver of this expenses increase was three . One is people cost. We added about 96 more human resources between the two periods. The other one was depreciation. The third one was software maintenance expenses. These were the primary drivers of the increase in operating and administrative expenses. Commercial expenses remains the same, I'm not gonna dwell on that too much. Operating profit was BDT 13 crore as opposed to a BDT 62 crore loss same time last year. Net finance income was BDT 42 crore, which was 36% higher than same time last year.
This is at the backdrop of our effective interest rate, which was in 2022 was in the range of 6.53%. It's this quarter we clocked our effective rates was a little more than 7%. That made our net finance income to BDT 42 crores. Our profit before workers' part-profit participation one was BDT 54 crores. Profit before tax was BDT 52 crores. Taking into account income tax, we clocked BDT 36 crores as the first quarter bottom line for bKash, which as I said is one of the highest so far. That's about it from my end, Masud bhai.
Thank you. Thank you, Moin bhai. Over to you, Selim bhai. Aapki mute hai.
Thanks, Moin. Thanks, Masud. Let's actually move into the questions now, before we end with an outlook from myself. Do we have any questions that we can ask Moin to answer for us?
Yes, sir. We received a couple of questions for bKash. Moin bhai, I'm just starting.
Sure.
The first question is that, is bKash finally back to sustainable profitability after years of investment, or will it revert to loss after deploying the SoftBank cash placement?
Well, we've made profits in 2022. We've made profits in the first quarter. So we've over the past 15 months, we've made profits. However, and we hope to continue. However, because of certain strategic intent, we might invest in areas which will give us further revenues for the future. You see, at the end of the day, we are creating an ecosystem. For example, merchant payments, which is not very prevalent or pervasive here with. It requires investments.
Yes, we hope that this trend of profit continues, but there will be investment that will be made in the future.
Thank you, Moin vai. The next question is: can bKash shed some light on how transaction mix is improving, like cash in, cash out ratio, P2P payments, et cetera?
Our biggest contributor to our revenues is cash out, which contributes about 75% of the revenues. Our next biggest contributor is person to person, which is about 8%. After that, we have merchant payments, which is also the third largest contributor in terms of commercial revenue. What we would like to see eventually is move the needle of the merchant payment higher so that... That is really our purpose. bKash's purpose is to ensure that there are more digital merchant payments being done.
Okay. The next question is, what is driving transaction volume of bKash? We know there are some couple of new products launched by bKash. The related question is, what new products have gained traction during last one year?
We've had very respectable gains in inward remittance. We've had gains in alternative sourcing of funds, i.e., funds coming in through cards, funds coming in through banks. We've had very significant growth in transfer money, which is money, funds being transferred from bKash to banks. Those are the three big-ticket drivers of volume growth. Not to mention, there is organic growth. You see the customer base is increasing, their active ratio is increasing. All that leads to an organic growth.
The next question is, has there been any changes in commission sharing with agents and dealers?
Yes. As I mentioned, As I mentioned in my P&L slide, yes, we are trying to rationalize the, our commission that we pay to our channel partners. However, it's not a straightjacket approach. There is an element of performance-based incentives that we pay to our agents, which has eventually resulted in more optimum usage of, or payout of commission rates.
Thank you, Moin vai. Till now, these are the questions that we have received, for bKash. If we get anything new, so we'll come back to it.
Sure.
Sir, can we ask other question that we received?
No. We'll do that later.
Okay.
Let me actually get into outlook, an overview of what we've been talking about for the last hour or so. If you look at Q1, how do I see it, from the bank's perspective, from my perspective? Our growth continues. If you compare to industry, a significant outlier both in deposits and loans. That is an important point, particularly since historically, the first quarter has always been a relatively muted quarter for BRAC Bank. For us to be able to continue our momentum from 2022, and especially the last quarter of 2022 into 2023, I think that bodes well for the rest of the year as well, both in terms of overall balance sheet, client, numbers, and of course P&L as well.
Importantly, in these three months, our market share has increased by 5 bps in loans and 7 bps in deposits. I'm referring to end February numbers as available from the central bank. That means a 5 bps of loans market share growth, a 7 bps of deposit market share growth in just two months alone. Pretty positive result. Deposit growth has been across all segments, slightly muted in corporate banking, that's also because as they have in the last month of Q1, which is March, they have exited some large expensive deposits. We are witnessing very strong customer confidence in BRAC Bank. That is particularly relevant in the current environment where there is local currency stress across the market. Our.
Importantly, our asset quality, customer asset quality continues to improve. As Ahmed Rashid Joy, our Head of CRM, showed you, I think our PAR numbers are today comparable to what they were in volume terms, almost exactly the same as in 2019, give or take maybe BDT 50, 60 crores. That I think is a fantastic achievement. Taka liquidity has been very, very strong. Our AD ratio remains below 80% even today. We are very, very liquid and have deliberately maintain the balance sheet at that level. Foreign currency liquidity, as our treasurer mentioned, again, we are more liquid than most banks in this country. We are open for all kinds of FX business as well. Bank-wide, our digitalization initiatives continue. They are a very important part of what we are doing.
We didn't spend much time talking about that in the first quarter. We'll certainly do so at the year end... half year. Challenges, of course, the market continues to be tight in terms of FX and local currency as well, that is always a challenge for us. Our treasurer also mentioned that we've had to rein in our own exposures in the local market, that does dampen, to an extent, investment income. The overall global economic outlook continues to remain depressing. High inflation, high interest rates in the U.S., potential recessionary impact in those countries that we export garments to. Our remittance flows have slightly slowed down across the country. This holiday season or Eid season, they were lower than what was expected.
That remains a challenge in terms of managing or controlling unofficial remittances, which we call hundi. That is not for BRAC Bank alone, but for the whole industry. There is an expectation that over the next two months the pricing mechanism in the country with regard to taka interest rates and foreign currency exchange rates will become more market aligned. We'd have to wait and see how that works out. Overall, a good, very satisfactory first quarter, and we expect momentum to continue to grow. We hope to end this year with a stronger balance sheet growth than even last year. I'll stop there, and we'll ask Deb if he has any questions for us. Deb?
Thank you, sir. We have received a few questions. We have received questions on, probably rate cap. The first question is that impact of Bangladesh Bank changes to rate cap teaching on BRAC Bank's NIM outlook. Will it be a game changer, and what would that mean for ROE?
Firstly, we're not exactly sure how this will work out. There are many different restrictions on pricing in Bangladesh, both for foreign currency and local currency. There is an expectation that by July, the Central bank will put in place a some kind of a reference rate, a benchmark rate, which may, for example, be the six-month T-bill rate. They could add, say, something like 2% or 3% to that and use that as the new interest rate cap. 3% on the six-month T-bill rate today would be something closer to 10% than to nine, and that means that our lending rate or asset yields could increase quite significantly.
We must also remember that there is a possibility that deposits will also become more expensive, so the overall cost of deposits might also move up. How it will impact our actual net interest margin, which is roughly around 4% now, has to be seen, because the Central bank also has a restriction on the net interest income or the spread or margin, as we call it. The prescribed margin is 4%. Anything over that generates a lot of censure from the central bank. We'll have to wait and see if they allow that to be withdrawn. If not, it will not make much of a difference, this change in the interest rate regime. We'll have to wait.
If it does change, and we are able to generate, more NIM, then obviously it will generate more PAT and will have a very positive impact on our ROE.
Thank you, sir. The next question is, can you please give us some guidance on key matrices for 2020, like what will be the loan growth, what will be NIM %, cost of risks, et cetera?
Obviously, you'll remember the disclaimer statements we started off with as we began this program. Obviously, I cannot make projections or forecasts in terms of numbers or percentages. I can tell you that we are growing strongly and there is no reason why we should not be able to continue our growth momentum in both deposits and customer assets. Our aspirations are high. Our aspiration is always to do better than last year. How that actually pans out across what is likely to be another difficult year, we'll have to wait and see. We are in terms of our overall competitive landscape, we are in a favorable position. Our bank has a very strong credit rating and increasingly customers across all three customer segments are recognizing the value of partnering BRAC Bank.
Our focus on corporate governance, our compliance with regulations, our transparency, the way we do business, the kinds of business we do are all attracting more and more customers to our counters. I see no reason why we should not expect a strong year. Even though this is just the fourth month of the year, I can tell you that our aspirations are high.
Thank you, sir. The next question is: do you expect NPLs to deteriorate given the relatively marked economic outlook for 2023?
You will have seen that our NPLs have been very well managed. They are at well below 4%. There are some challenges in the corporate banking portfolio. Nothing that, as Tareq Refat Ullah, our Head of Corporate Banking, mentioned earlier, are surprises to us. We will have to take care of that part of the business. Other than that, we remain very confident in corporate, in SME and retail banking. Overall, we continue to expect to see an improvement in portfolio quality and do not expect any serious deterioration.
Thank you, sir. The next question is: when can the customers see Nano Loan from BRAC Bank? When people can open a small amount of DPS, FDR through bKash?
The DPS, that is subject to an integration with bKash. That will be rolled out this year. It may take a little bit of time. There are some technical issues. We are dependent upon bKash for that, but we are making every effort to roll out the DPS capability within this year. We're not particularly interested in nano-lending. To the best of my knowledge, it is not something that has been particularly profitable with the partners that are working with bKash currently, and certainly isn't in an interest rate regime where you have lending rate caps in single digits. I find that kind of business to be very difficult to put in place.
What we are investing in is digital lending in terms of retail, in terms of small business. Most of that will be rolled out by the end of this year, and you will see significant improvements in volumes and productivity as well from the kind of digital lending that we are focusing on. This is different from very small amounts of loans which we call nano-lending.
Thank you. Recently we have seen BRAC Bank rating AAA credit rating. BRAC Bank conducts credit rating with S&P and Moody's. Do you have a plan to do it with Fitch as well?
Not immediately. These ratings are quite expensive and, as you will recall from our P&L, the one area that we need to put in more effort is management of costs. We'll think about it. Two international rating agencies. Do we need a third one? It's certainly something we'll think about. Thank you.
Thank you. From financial statements, we see BRAC Bank continuing its last year's growth pace in deposit and loan and advances, and that also continued first quarter. The investors would like to know, what is special in BRAC Bank?
What is special about BRAC Bank? For one thing, let's start off with the fact that the bank is recognized as a role model, a leader in terms of corporate governance, in terms of sustainable and ethical banking in this country. Number two, our board is considered to be probably the best board in the country in the way it conducts business, in the way it has empowered management to operate, and the way it has guided this large ship across the large last six, seven, 10 years. What else? Our service standards have improved very significantly with the advent of these various digital services. If you look, compare us today to January 2020, when 17%-18% of our transactions were digital or alternative in nature, today, that number has jumped to between 65%-70%.
In terms of numbers of transactions, tickets, we say that close to 85% of all transactions in the bank are now digital in nature, which means the quality of that service, the quality of that transaction is far superior to what we used to do when we ran it through paper and analog mechanisms. Today, BRAC Bank's retail app, banking app, Astha, is by far the most superior app in the country, and it's only two years old. Today, BRAC Bank's corporate payment system, CORPnet, is the largest and most popular corporate payment platform in the industry. There are a number of other different digital products that we have rolled out as well. The quality of our service, the nature of our service, has also improved and is continuing to improve.
Lastly, the trust of the customers in the BRAC brand, that is very, very strong. BRAC represents corporate governance. BRAC represents socially responsible financing. BRAC, the brand itself, represents caring for people. It is something that has been in this country for over 50 years, and it is a brand that is very well accepted and trusted in Bangladesh.
Thank you, sir. We have seen BRAC Bank is providing around 50% dividend for last couple of years. When the shareholders can expect more dividend in view of rising net profit, what banks can do to revive this stock market, what is performing badly right now?
Firstly, in terms of dividend payments, we have some complicated, some would say even impractical, restrictions in place with regard to issuing dividends. We are forced to issue a certain amount of cash dividend, simply because otherwise we attract super taxes, etc., etc. We're forced to issue a certain amount of cash dividend. Now, this is a business that is generating an ROE of roughly 10%, and the potential is to actually increase that beyond 10%. Would you, as an investor, want cash, or would you want to reinvest your dividend, your cash in this company and continue to generate value at 10% or more? In most cases, certainly most professionaly.
Shareholders, institutional shareholders actually want to roll their money in this kind of business. It is also necessary for the company's own growth potential. If the company can grow at 25%, 30% year- on- year, this is a company you want to reinvest in rather than take out cash. I think in terms of answering your particular question, Deb, the board is very cognizant that a certain amount of cash has to be paid out, but equally they realize this is a company with a very strong growth platform in place now, and it makes sense to continue to reinvest back in this company and hopefully generate even better double-digit ROE going forward.
Thank you, sir. That's all for the BRAC Bank, we have received two questions for bKash. Coming back to Moin bhai. Moin bhai?
Yes. Yes, Deb.
Moin here?
Oh, good.
Yes.
Moin bhai, in your discussion, earlier discussion, you have mentioned that you would like to increase the transaction with merchant. One question is related to that. How would you do that? What will be the goal? How can you achieve this higher transaction with the merchant?
Okay, there are various approaches one can take to increase or scale up merchant payments. We are approaching this issue on a three or four different perspectives. We're looking at it from a technological point of view. We're looking at what are the pain points of merchants, what is the value, why would a merchant shift from a cash-based transaction to a digital-based transaction? We've understood that. We are trying to figure out ways as to the value it would a digital transaction would add to the consumer, to the merchants, and also spread the digital ecosystem. It is not something that we will achieve overnight, but it's a gradual process that will happen.
We've seen that happening, in many parts of the world, including neighboring countries.
Thank you, Moin bhai. The last question is, OpEx growth is slowing. Can you please give us some guidance on how OpEx and required investment to grow transaction volume and mix look like in short term and midterm?
OpEx growth is slowing. That's a fair statement to make. You see, in the first quarter of 2023, we did not indulge or involve in any big-ticket marketing campaign. We did have small bursts of it. We did not have any major technological spend as well. In the coming quarters, this trend is most likely to change where you will see more investments being made, particularly in the merchant payment space.
Thank you, Moin bhai. That's all from my side. Thank you.
Thanks very much, Deb. Thank you, ladies and gentlemen, for joining us tonight. We wish you a good evening and salaam alaikum. Thank you again.