Right. Good morning, everybody, and welcome to FirstRand's year-end results for June 2022. All right. The group's performance metrics on slide two thankfully reflect a full recovery from the pandemic. Normalized earnings, you can see there, up 23% to ZAR 32.7 billion. The strong driver, of course, being the charge-off for credit improving by half. Pre-provision operating profit up 6% to ZAR 53.8 billion. Return on equity, pleasingly 20.6%, with NAV increasing over the year by 9%. Operating leverage, as you can see, came in flat over the year, and our common equity Tier one ratio accreting further to 13.9%. Given the ongoing generation of capital in excess of the demand for capital, the board is comfortable to lower the cover range slightly to 1.6 x to 2 x.
The annual dividend this year was struck at 1.7 x, reverting back to the pre-pandemic payout percentage, a level the business considers sustainable over the forecast period. In addition to the annual dividend, given the point in time capital surplus, the board also declared a special dividend of ZAR 1.25 per share. Slide three summarizes on the left the guardrails we articulated at the commencement of the pandemic. The earnings normalization journey is now complete, with earnings 17% above the peak reached in June 2019. Returns are comfortably in the target range, notwithstanding healthy accretion of capital, and the balance sheet, importantly, is now far stronger than the position we were in at the start of the pandemic.
Moving on, the spring in the step of normalized earnings, up 23%, of course, came from the step down in the annual cost of credit that you can see on the top right. Now somewhat below the charge we took in 2019, coming in at 56 basis points. Slide five depicts the year-on-year staging of balance sheet credit-related provisions as well as coverage. The pre-pandemic provision stack in 2019 is also displayed. The sagacious management of the credit portfolios and health of the balance sheet is evident from the decline in both stage two and non-performing loans. This is a function of collections, write-offs, account curing, and a reduction in operational non-performing loans. Coverage, as you can see, remains healthy, notwithstanding a year-on-year provision release, and shows improvement from the pre-pandemic levels. Moving on the left, we reflect our generation of economic profit.
That is our accounting profit after deducting a charge for the cost of capital, a cost that you can see has declined slightly compared to the previous year. We are delighted with the surge in economic profit, only slightly lower than the high achieved in 2019, and that is due to much higher levels of capital in 2022. Return on equity solidly in the target range, lower than the 2019 return on equity because of the lower return on assets as well as lower current gearing. Relative to 2019, margins after impairments have widened due to the favorable shift in funding mix. On the right, we depict our growth in net asset value. As you can see there, up 9%.
Slide 7 takes us to capital, and it's the walk of our common equity Tier one, or CET1, ratio for the year, rising 40 basis points with net NAV accretion from strong earnings being absorbed by growth in the balance sheet. Credit volumes comprised 60% of the capital demand. Risk-weighted assets over the year grew 7% compared to the -5% recorded in financial year 2021, with density this year marginally higher than the past year. At 13.9%, the group has ample resources to deliver on its growth ambitions. Furthermore, as part of the ongoing capital optimization, we intend to issue additional AT1 and Tier two to further boost our capacity. The special dividend that we've declared reduces the common equity Tier one ratio to 13.3%. Again, well above our internal targets.
This next slide provides a summary of the points I've just mentioned. It sets out the delivery to our shareholders because of the judicious management of the balance sheet over the past few years. In the current inflationary world, yield increasingly matters to our shareholders, and we are well pleased we could deliver. The continued return on equity and earnings have driven NAV accretion, allowing the board to make the dividend declarations as well as confidently lower the cover range. Right. Looking at the operating environment. The next couple of slides will give us a highlight of the macroeconomic backdrop over the past financial year. While developed markets have experienced headwinds, there have been some positive cyclical benefits for South Africa. As the domestic commodity-induced cycle begins to fade, promising structural benefits should provide some offset. We have increased our conviction on this theme over the past year.
Starting with the South African macros. Of course, we did not escape the heightened global economic uncertainty brought about by the war in Ukraine, an inflation leap across most developed economies and hawkish central banks around the turn of the year. South Africans also had to deal with the damage brought about the floods in KwaZulu-Natal and a step up in power interruptions. These factors saw a macro environment domestically characterized by a significant lift in inflation, the start of an interest rate tightening cycle, and low business and consumer confidence. However, the positive spillovers from the global environment also came in the form of a material boost to South Africa's terms of trade, supporting income growth in several external facing sectors, pushing the current account balance to the highest levels in decades, and this provided a very useful windfall to the fiscus.
This allowed a pickup in the country's private sector credit extension, as you can see there, bottom right, from the post-pandemic lows, and of course, that markedly macroeconomic conditions were much more difficult at the start of the previous financial year. Moving now to the U.K. Given the proximity of the U.K to the effects of the war in Ukraine, the associated increase in international energy prices, the absence of a terms of trade boost, U.K. macros, of course, have seen a significant increase in inflation and a tightening of monetary policy. With inflation now at levels not seen since the 1970s, the U.K. Has been dealing with an unfolding cost of living crisis that is now being addressed by the new Prime Minister through through some extraordinary fiscal measures.
The housing and labor markets have, however, held up relatively well during this period, with unemployment, the unemployment rate remaining at very low levels and wage growth remaining solid, albeit in nominal terms. The strength of the labor market does, however, reflect a shortage of labor supply in the face of structural changes brought about by Brexit and the pandemic, which has posed its own set of challenges to policymakers and businesses over the last year. Right. This next section delves into some of the strategic drivers underpinning the group performance. On slide 13, we capture several financial resource management themes, and that, of course, provides context to our performance. It's also what guided the group during and out of the pandemic. Regarding asset growth, we maintained our discerning approach to origination, focusing on risk-adjusted margins and a desire to improve our new business mix.
Lending momentum accelerating domestically as the economy gathers pace. At the same time, the elevated importance of growing the deposit franchise came to the fore. Our long-standing ALM practices provided a material underpin to our performance, resulting in a balance sheet that strengthened year to year. Moving on to look at pre-provision operating profit or what's referred to as PPOP. So PPOP, that is profits before considering the charges for credit, up 6% year-on-year. A focus on PPOP rarely occurred in the pandemic, given the overwhelming provisions raised against credit portfolios. As the pandemic effects fade, of course, focus will fall again on the bottom line performance, as it should, because it reflects the complete picture of banking operations. After all, credit risks do matter. Nonetheless, looking at PPOP, the components are net interest income, non-interest revenues and operating costs.
For the group, net interest income up 5%. It reflects the discerning approach taken to origination, a mix change in favor of secured lending and lending momentum that picked up over the year, leaving average advances growth still quite muted. The deposit and ALM performance, however, were standout contributors to net interest income. Non-interest revenues grew 8% at a group level, reflecting growth in both customers and volumes. Insurance recovery, of course, added further impetus to NIR. Operating costs up 6% over the year, a pleasing outcome given this inflationary environment. At the interim results, we also flagged an operational event within MotoNovo impacting its operating profit. This matter relates to the non-compliance with the U.K. Consumer Credit Act, whereby notices of sums in arrears or to what's referred to as NOSIAs were not correctly issued to qualifying customers.
The financial impact of this will be unpacked later by Harry in his section. Moving to advances on the balance sheet. You can see they grew 8% over the past year with an acceleration in core customer advances half-on-half. Growth now is evident across all customer portfolios. U.K. sterling originations up strongly driven by business finance and vehicle finance. Just looking at this new business origination tilt. This slide here depicts retail advances, new origination for FNB and WesBank. You can see this continuation of a tilt towards lower risk business. This is where we believe sustainable affordability lies, particularly in the unfolding macro environment. FNB's lending strategy is to protect its core customer franchise and should result in a higher share of good quality, lower risk business, satisfying credit demands as income recovers.
External and internal data ensure that customers are protected for the right credit product in the right size, given affordability pressures. Some lending appetite, as you can see, top left, has returned for medium risk customers in FNB. Moving down to the bottom, you can see mortgages and personal loans have seen a noticeable pickup in production. Okay, moving now to commercial and corporate advances. Again, another good story from FNB commercial advances up 11%, over the year and really led by lending into the agriculture sector. RMB's corporate advances, the wholesale activity, you can see their balance sheet up 18%, and that excludes RMB's repo activities. This level of production in RMB bodes well for the infrastructure energy road ahead in the country. Moving to the U.K., slide 18 reveals very healthy new asset production within the Aldermore Group.
Overall advances up 6% in sterling, and of course, that's lower than the projection that you can see there, but bear in mind, the U.K. has a much faster run-off profile in their lending portfolios. Moving to deposits. The group's deposit gatherers, most notably FNB, have performed exceptionally, with FNB being the top household deposit franchise in South Africa. Customer deposits enable Group Treasury to optimize the funding mix and also to build the group's liquidity buffers. Slide 20 reveals the liability performance of FNB, RMB, and Aldermore. All three added to the group outcome with compelling customer propositions fueling the growth. All right, moving on. The management of the group's balance sheet is anchored in what we refer to as asset liability matching principles and management principles.
Most of these strategies that have played out strongly in the past financial year were first implemented in 2017. Our ALM principles, of course, do not allow Group Treasury to add to the natural risk profile of the group. The aim is to protect and then enhance earnings and provide the most optimal outcome through an economic rate cycle on a risk-adjusted basis. Group Treasury follows a consistent investment philosophy and a disciplined investment process. The ALM strategies during the pandemic added resilience to the performance, acting countercyclically to the customer operating businesses. This next slide really shows the impact that this had. As depicted by the graph on slide 22, the historical and market implied forward rate is used in crafting this picture, and you can see the protection of earnings over a rate cycle due to these ALM strategies.
By earning the structural term and risk premium anchored within the ALM principles and within a defined risk framework, Group Treasury adds stability to the growth profile, while at the same time lowering the group's open rate position. Moving on to non-interest revenue. Okay, up 8% year-on-year. FNB's platform strategy accommodates scalable volumes and multiple interfaces. This is something we've spoken about, but it continues to play out strongly. This really underpins FNB's increase of 8%. It is also boosted, of course, by the rebound in the insurance activities. The channel strategies allow customers to interact when they want on the interface and in the channel of their choice, whether assisted or unassisted. Most of FNB's financial services can now be accessed and done digitally 24/7. Numerous FNB awards are testament to the execution of this platform strategy.
Active customers, very pleasingly, continue to grow, and we added 480,000 during the year. VSI or our Vertical Sales Index up over the year benefiting from the increasing multipurpose offering on platform, including lifestyle offers, rewards, third party sales, mobile and digital vouchers. Transaction volumes in FNB now exceed ZAR 3.2 billion per annum. The insurance businesses experienced lower mortality and retrenchment claims in the past years. The number of COVID related deaths reduced and the economic conditions improved, resulting in lower claims reserves. The life business paid ZAR 2.6 billion in claims over the past year. FNB Life continues its impressive run with strong in-force annual premium equivalent growth of 14% on the back of solid new business volumes. The short-term insurance business is gaining traction with impressive new business sales following the launch of motor insurance and homeowners cover.
The business will now be able to focus on developing products that support and differentiate FNB and RMB customer value propositions. RMB's non-interest revenue increased 6%. Another very good performance from investment banking fees, with markets benefiting from volatility in foreign exchange, strong commodity prices, and healthy activity in equities. Private equity saw a much improved equity accounted earnings performance emanating from the portfolio. Okay, we'll now move to consider the operating highlights per franchise. On this first slide, we unpack the group's normalized earnings of ZAR 32.7 billion by operating business with a strong performance across the board. I am gonna unpack each of the customer franchises separately, but just to deal with the center performance that's really reflective of Group Treasury's results for the year.
It's a function of higher levels of unallocated capital sitting within Group Treasury, improved investment rates, and a lower cost of funding. Right. Moving first now to FNB. Earnings up strongly driven by the improvement in the credit loss ratio. It lifted return on assets and return on equity. Cost of credit in FNB now well below the through-the-cycle range and trending upwards from here. Although the benefits of a structurally better lending portfolio in FNB will be advantageous. Advances growth gained in the second half and improved approval rates saw asset momentum carry over very strongly into the new financial year. Despite a high base for deposits, FNB continues to target deposit acquisition strategies. Regarding cost to income, the lower asset NII from muted advances growth over the year contributed to the negative directional move in cost to income.
FNB's operating costs are, of course, receiving a lot of management focus given the inflationary environment. Right. Moving on to RMB. Earnings up a pleasing 17% off the back of a sharply lower charge for credit. This lifted the return on assets with ROE again back above 22%. The anticipated pickup in core advances, something we had been flagging over the past year, has now occurred with core lending up 18%. A good omen for net interest income in the year ahead. Furthermore, lending pipelines and deal pipelines in RMB remain very healthy. Transactional balances you can see continue to build, rising 12% over the year. The cost to income ratio reflective of normalizing employment costs on the back of improved performance, as well as elevated investment spending in RMB. Moving to WesBank's highlights.
Normalized earnings up 23% with the credit loss ratio now dipping below 1% being the main driver. Lending margins declined, given the origination tilt towards highly sought after, lower risk quality customers. Increased write-offs and normals, and normal settlements had resulted in muted advances growth of only 2%, despite new business being up 11% and a similar level in the OEM joint ventures. Due to stock shortages in the motor industry, WesBank's floor plan business saw record releases as destocking took place. Pleasingly, banked customers now represent 65% of WesBank retail lending and 77% of corporate and commercial lending. Both pre-provision operating profit and cost income ratio remain under pressure in WesBank due to lower volumes, lower margins, and increased acquisition costs. Overall costs were well controlled in WesBank at 4%, and that's inclusive of ongoing investment spending.
Moving to our subsidiaries in Sub-Saharan Africa, we refer to them as this portfolio as broader Africa. Performance, again, driven by credit improvement and the scaling of the growth phase subsidiaries. The year-on-year deposit performance was very commendable. The focus for the past year has been on customer growth, strengthening the deposit and transactional banking franchises, and growing advances through targeted lending in the mid-corporate and retail segments. Retail and commercial active customers have now grown 4% year-on-year to ZAR 1.9 million. Customers continue to adopt digital platforms. For example, app penetration now in Sub-Saharan Africa, just under 40%. This should assist the cost base, and it will, of course, further enable innovation on the customer proposition side. Moving to consider our businesses in the United Kingdom.
Slide 30 sets out the key performance metrics, and this now includes the MotoNovo back book, which has run down dramatically. The Aldermore Group focuses on the provision of finance to U.K. SMEs, homeowners, landlords, and vehicle owners, as well as providing a range of competitive savings products. Normalized earnings up 13% to GBP 149 million with a similar increase in pre-provision operating profit. The U.K. Return on equity continues to improve, coming in at just under 12%. The new CEO has refreshed both the business strategy and the executive team. There's now real momentum in the business with good asset and deposit growth over the past six months. Of course, this is with a laser focus on sectors and segments we want to be in.
Capacity is being created within the business to facilitate further growth at attractive margins and acceptable risk, of course, being mindful of the current macro environment. The business is very well-placed to increase collections capacity should this be required. I think there, Harry Kellan, I hand over to you to take us through the financial numbers.
Good morning, everyone. It's actually very good to see faces in real life compared to a screen. Okay. Alan has just unpacked the composition of the earnings growth, but I'll just like to reiterate, we are above 2019 peak earnings. Now, while NIACC has not quite reached that peak level, it has definitely more than doubled compared to last year. Now, why is this important? Well, it's a key performance indicator for management. I mean, we fundamentally believe paying shareholders first, and that's why we talk about economic profit generation. Now, if you look at capital, Alan's right, 9% up from last year. If you look at it from 2019, that's pre-pandemic, that capital increase is in absolute terms, 27%. Then the outcome of this is clearly reflected in the ROE at just above 20%, 20.6.
Most of the stats I'll actually cover through the presentation. Okay, this is just a high-level snapshot of the income statement. As you can see, the reduction in credit charge again this year is a contributor to earnings. However, the contribution from both NII, interest income, NIR in absolute value terms is just as large as the credit reduction. All right, before I move on, let's cover the significant increase in tax rate from 23.9% - 26% at year-end. There are a couple of moving parts on that. One, revenue generation or the revenue mix clearly towards more taxable revenue streams, including what you see is lower private equity realizations. Deferred tax asset, now that reduces, just given the 1% decrease in the SA corporate tax rate. Okay.
In line with the strategy just detailed earlier by Alan, PPOP is up 6%, marginally better than the 5% that we printed at FirstRand's first half. The slight uptick in the second half clearly is from the 8% growth in NIR. Now, with the tilt to better rated credit origination, we benefit in the credit charge, which is offset by effectively the muted growth in NII, and thereby impacting this PPOP level. We are very comfortable with these outcomes, actually. Then lastly, impairment is down ZAR 7 billion, ZAR 4 billion for the first half, ZAR 3 billion for the second half. Yes, it is lower than a 2019 ZAR 10 billion charge. When I get to the composition of charge, you will notice how the origination strategies we're talking about plays out to date in lower NPLs and hence the charge. Okay.
PBT. PBT clearly represents the clearest picture for operational performance of the business. What you see here across the portfolio, PBT is up strongly given the strong top line, well-managed costs. It's well-structured origination strategies and thereby the credit management thereof. U.K. ops is just over GBP 200 million. I mean, that's a solid performance of 12% in that environment. The business has fared very well. As Alan mentioned, strategy realignment is completed. Focus area is clearly articulated to a savings and lending business. Solid deposit growth, resilient advances growth as well. There are two particular events I would like to highlight. The two one-offs that can largely cancel each other out. First, in the yellow bar, that's quite high.
Aldermore's growth, particularly in its business finance portfolio, benefited from some model refinements on its effective interest rate calculations, and amounted to a total of about GBP 24 million. Then again, as mentioned at interims and by Alan earlier, MotoNovo has been dealing with an operational event relating to the Consumer Credit Act in the U.K. They will be refunding interest and fees to customers, totaling about GBP 23 million. These issues actually relate to system coding errors, and those errors actually predate acquisition of Aldermore. All right, let's move on to NII. 5% growth. This year is impacted on the slide by activity. Focus your eyes on the far right. The U.K. ops is up 11% in pound terms, actually. Numbers driven clearly by the funding cost benefit and the growth advances, in particular business finance and MotoNovo finance.
Far left. Although year-on-year lending NII is flat, there's a pickup in advances that we talked about in the second half. In particular, retail advances in FNB and corporate in RMB. Transactional NII. Now, that's reflective of the performance of consumer transaction franchise, customer growth, and also the benefit of endowment on a much higher deposit base. The higher capital base clearly is supported by a known sitting in Group Treasury, as well as Group Treasury's performance in the second half that includes the benefit of ALM strategies implemented, as Alan detailed earlier. Okay, so margins, some NIMs. Period on period, the group actually improved five basis points. What you'll see here is largely from the U.K. Operations. Higher margin growth for MotoNovo, while also benefiting from an overall lower funding cost provided by Aldermore. U.K. ops, the NIM excluding U.K. ops, right?
The NIM is largely flat. SA broader Africa NIMS. There was a funding benefit from the deposit franchise. This was offset by the mix in advances growth and then the origination tilt that we mentioned earlier. This in turn was offset again by the ALM actions, adding value from Group Treasury. Overall, these dynamics translated into a five basis point NIM uplift. Deposit franchise, strong performance, 14%, and that's on top of an elevated base from prior periods. It is important to note that the growth in deposits actually is despite individuals and businesses as you would expect, utilizing some of those discretionary post-lockdown buildup of of funds. Now, this was clearly offset by the ongoing growth in active customer base. Now, the MotoNovo book actually is now fully funded by Aldermore.
Aldermore has effectively funded close to GBP 4 billion, and that's over the last three years, since May 2019. Retail, commercial, corporate deposits effectively largely funded our advances growth. I mean, this resulted in lower and less funding required from Treasury. Aldermore, as you see here, continues to play down the BoE TFS funding that's on their balance sheet. Okay, this slide, I'm not going through every bar, but what you'll see here is the shape of advances across the portfolio. It reflects timing, as we talked about, the appetite clearly, and what Alan has also described earlier on as a very uneven recovery across the segments in the economy. Right. This here is now the high-level snapshot of the income statement again, and as you see, the reduction in credit charge. Again. Oh, where did I go? I'm back into the first slide. Apologies.
Advances is where I meant to be. The composition of advances is largely unchanged as we see here. You see the donut on the left? The mix really hasn't changed much actually. I mean, you'd expect no significant change when you're dealing with ZAR 1.3 billion of advances. Retail book still reflects 50% of the book. Now, on the top right, what you see is the composition split of the advances book across the various stages. What you see, it's pleasing to see the NPLs down 16%. Stage two, marginally up at 1%, and clearly stage one up 11%. I mean, that's reflecting the tilt in quality and the growth in the second half. NPL reduction, as I mentioned earlier, is a significant contributor to the impairment charge.
The tilt that we talked about and the model macro variables, which at this period in time in June, were positive on a relative basis to prior. I mean, that resulted effectively in the ZAR 2.9 billion pre-provision stock release to ZAR 47.7 billion. This balance actually is only ZAR 1.6, 1.7 billion lower than that of June 2020, as when we had the pandemic buildup. It is significantly above in what you see in Alan's slide compared to 2019. As I said, Alan has detailed the coverage ratios across the stages, and these are higher than what you see at 2019, which was the pre-pandemic period. Okay, the 16% drop in NPLs. As mentioned, impact to the overall shape of our impairment charge. Now let's have a look at how that impact plays out.
Paying NPLs, top right, that declined by a third. Now that's clearly reflecting strong collection activities and also the curing of customers thereby. Operational NPLs, now that's bottom left, also declined by 11%. Now, yes, that is also a reflection of strong collection activities by the business, but clearly the benefit to roll rates, given the tighter credit appetite, if you focus on what Alan's slide shows, much more lower in medium risk customers play out. U.K. Operation NPLs pleasingly also declined 13%. Okay, on this slide, okay, I'm giving you further granularity of the shape of the impairment charge. What you see here is the benefit of that conservative approach from the origination, and as I said, subsequent NPL dynamics play out. Now remember the charge reduction.
Now what you see in the middle is clearly matched by top line growth, as I said earlier on. We believe the quality of earnings actually remains quite intact. Now you will notice here the ZAR 6.5 billion reduction in impairment charge year-on-year comes from, A, lower write-offs, top bar, and effectively the year-on-year swing in NPL-related charges. What you will see is that ZAR 2.9 billion reduction in impairment stock that we spoke about earlier actually is just all NPL reductions of it. Okay. Somehow I'm going back to the beginning. All right. Okay. Finger trouble. Okay, let's move on to NIR. Now, the diversity of the group's sources of NIR is clearly demonstrated on the slide. Fee and commission growth remains resilient and on the back of strong customer growth and volumes. This year's performance is particularly pleasing.
I mean, if you remember back at July last year, we had near-zero increases in prices, and there was significant reduction in both retail and commercial of certain fees. Insurance, I'll cover in the next slide. Trading income. Now that's 15% growth off a high base. Clearly, it's on strong client flows and on the back of market volatility mentioned by Alan earlier. I mean, that resulted in a solid performance by our markets business. All right, insurance income. Now that's a growth is a combination of one, the healthy 12% in premium income. Now that's both life and short term. Much lower claims experienced in the period, and that in turn actually drives lower claims reserve. Now the cell captives at the bottom, they clearly experience similar trends.
However, the income growth is impacted by some new business effectively being written on the group's own licenses. You'll see that trend continue. Overall insurance income up strongly at 29%. Lastly on NIR, private equity. What you see here is clearly also benefited significantly from the underlying portfolios, which is effectively characterized by the improved profitability coming from them, and that drives the annuity income. The moderation of impairments, clearly also compared to prior years, contributed significantly to the performance. Now with that increased profitability, you and the good investment flows of ZAR 1 billion in this year, unrealized value in the portfolio is quite strong. It increased to just short of ZAR 6 billion, ZAR 5.9 billion. Okay, I'm gonna give you the first slide every one I go. Just to remind you of the structure of the income statement. Staff cost.
Our staff cost represents 61% of the total cost. This ratio has been actually fairly quite constant over the years. That grew a total of 6-8%. Direct cost, as you see in the slide here on the top, grew 5%. That includes salary inflation and headcount growth. Variable remuneration then changes that 5%-8%. You would expect that given the rebound in earnings and the impact to short-term incentive bonus growth, as well as costs related to our share price linked incentives. IT costs on the bottom is benefiting, and what you'll see on the slide, is benefiting from prior accelerated write-offs. The focus on cost management and the savings clearly also benefit the business, and we continue to invest in the future growth initiatives. Cost to income ratio, largely flat.
Okay, so on the bottom part of this graph on IT costs, it reflects IT growth spend. Now, yes, I know it's 3% for this period, but effectively compounded 9.3% over the last five years. Staff costs, bottom left, remains largely in line actually to the inflation print over that period, the past five years. It does include headcount growth. The elevated IT spend largely funded by what you see on the top right, by sub-inflation growth and other costs, and that's the focus of cost, resulting in overall cost compounded at just short of 5% over this period of five years. Now, I'd like to just remind you that we actually when we do our investment spend, we invest through the P&L, not necessarily back onto our balance sheet. Okay, so I'm looking at my last slide.
What you see is effectively right across is the P&L in the shape thereof clearly reflects the strategies that we have executed and the drivers are in line with what we'd expect given those strategies. Quality of earnings is captured in the top line, and our conservative approach clearly paying out in the impairment charge. Ladies and gentlemen, thank you for that. Hopefully, the front slide doesn't come in Alan's section as well. Thank you very much. Thanks, all.
All right. Thank you, Harry. All right, we're getting to the end. Right. Looking ahead, it's very helpful, I think, to look at the macroeconomic environment that we're likely to face in our various geographies. Beginning with our domestic market here in South Africa, I think despite some noteworthy risks that are well known, we're very optimistic about the period that lies ahead. While inflation will remain high for the next few months, we expect the South African Reserve Bank to continue to hike interest rates into the turn of 2022. Inflation will then be on a downward path in 2023, and interest rates should have normalized from the abnormally low levels experienced during the pandemic.
is reflected in our expectation that real policy rates will settle at levels that are more reflective of the long-term averages and capacity of this economy. It is also encouraging that we are seeing early signs of an easing in the fuel price pressures, and global food prices are also beginning to ease. Falling inflation and stable interest rates should support households' real disposable income growth and provide support to consumer and business confidence. While the inflation and repo rate cycle should be relatively supported from a cyclical perspective, we are also most encouraged by the green shoots of progress that we are noting on the economic reform front. It is early days.
However, we expect the energy reform program, the proposals to involve the private sector even more in the transport sector and other reform initiatives that are being tracked to have the potential to crowd in private sector investment into building the capacity of this economy and improving confidence. Against a backdrop where private sector balance sheets have the capacity to lean into these initiatives, we expect the macroeconomic backdrop to be more supportive of private sector asset growth than has been the case for quite some time. We are nevertheless mindful of the risks, and we are keeping a keen eye on them. These include a tightening of global financial conditions and a fading of the commodity tailwind, uncertainty around the global inflation environment, and South Africa's socioeconomic backdrop, and the associated uncertainty that comes along with structural reform programs.
Sticking to the left-hand side of this slide, as is the case in South Africa, inflation headwinds should stabilize and start to ease during 2023 in most of the countries in FirstRand's broader Africa portfolio. This should support sectors that benefit from stronger household purchasing power and domestic demand. At the same time, however, the benefits of the commodity tailwind will start to fade, which will pose a much more challenging environment, certainly for mining and related sectors in the portfolio. The fiscal tailwinds that governments enjoyed will of course also start to fade. Each country does, however, pose its own unique macroeconomic opportunities and challenges. On this score, we would call out Ghana's fiscal dynamics and the accompanying discussions with the IMF are developments that we are watching very closely.
At the same time, we are encouraged about developments in Zambia and the potential impact of the recently announced IMF program on the longer-term outlook for that country. If you look at the left-hand side graph, you can see, I mean, the two countries we would just, you know, highlight there, one is Ghana, which I've mentioned, the other one is Nigeria. I think those are two kind of standouts. Certainly Nigeria, big market for RMB. Ghana, of course, we are consolidating the two businesses that we had. We are optimistic about the longer-term prospects, but certainly short-term, I think there's a tough time coming in Ghana. Just moving then to the right-hand side and the U.K.
Although the recently announced policy to freeze utility prices in the United Kingdom will reduce inflation relative to our previous expectation and provide real disposable income support to households and businesses in the U.K., inflation nonetheless will remain disconcertingly high in the U.K. and pose a real cost of living challenge. In fact, we expect the disposable income hit that households are suffering to push the U.K. economy into a mild recession, which will lift the unemployment rate and drive house price growth into negative territory. That said, we don't anticipate a recession anywhere near as deep as we experienced during the pandemic, and we would expect the outlook to improve towards the end of 2023. We are, however, mindful that the U.K. macros will be quite challenging for the rest of this financial year. This really gets me to my wrap-up slide.
I think notwithstanding some near-term macro uncertainty across our geographies, we remain confident in our strategies and the strategic execution thereof continues at pace. Our financial resources, as we've demonstrated, that support our customer propositions are plentiful. Importantly, we have begun the new financial year very much on the front foot. Then some thank yous. Of course, our various regulators have provided guidance to our businesses over the past year. For that, we are grateful and thankful. To our customers, they are the reason we are in business, and we appreciate the opportunity to serve them. Then a final shout-out to FirstRand employees, you really have delivered the goods this past year. Thank you for that. Thank you for your attendance, and we'll now take questions. We have the CEOs of the operating franchises here in the room with us. Group Treasury is here.
Capital Centre is here. Right. Let's get to the first.
Morning. Thank you. It's James Starke from RMB Morgan Stanley. Alan, Harry, thank you for the presentation. Just one question on margins. You've made very good progress on the cost of funding, and you've highlighted the somewhat dampening effect on the mix changes. How should we think about that going forward from here? Perhaps remind us on how some of the hedging activity rolls out and what we can expect 2023 and perhaps even into 2024, given the hedge consequence. Thank you.
James, thanks for that. Emery, I can take that if you can hear me. Let's start with your question on the back end. Hedging activities. Actually, what we're seeing is that given the success thereof, actually Group Treasury has put that into its arsenal. We see that actually as a business tool that we'll use for our tactical portfolio and capital. Yeah. Yes, previously we expected this to go to year zero by end of next year. Actually, you'll see this playing out as part of the business. How do you see NIMs going forward? One, we talked about the tilt on credit quality. Clearly that mix, and including more home loans and corporate towards the end of this past financial year, that will be negative for margins. Positive is clearly endowment, great cycle to come.
We've had big to date, and we're still expecting that cycle to continue to December. U.K., I think, will probably not give a similar kind of benefit. On the swings and roundabouts, I'll be surprised if we couple of basis points on either growth or down for the full year. Because, I mean, with advances growth, we still think strong deposit growth, but we'll have to then fund from Group Treasury's funding, and that's a slightly expensive funding as well. Thanks. James, hopefully that answers. Andrew, you don't wanna add? Okay. Right. Mel got a question there on the-
Yes. We've got some questions from the webcast from Chris Stewart from Ninety One . Given strong endowment tailwinds, resumption of balance sheet growth, high on balance sheet provisions, a low base for private equity, and a focus on costs, targeted earnings growth of nominal GDP + 3% appears insufficiently demanding. Please comment.
I'll go. Internally, we're chasing a faster growth. Chris, yeah, I expected that question. I mean, I do think there's, you know, sort of directionally we would expect NII to accelerate. I think that's evident from the activity we're seeing on the balance sheet in terms of advances. As I say, we started the new financial year really well. In some respects, that year-on-year advances growth at least now starts playing out in NII, whereas average advances growth over the past year was very muted, 'cause most of the activity sort of accelerated towards the end of the financial year. At least the balance sheet is loaded. We hope NII lifts from these levels.
NIR, you know, we would be hopeful that we can continue that pace. We're gonna Harry tells me you're gonna keep, Harry and Mary, they're gonna keep a tight handle on costs, and Jacques and Emery going forward are gonna look after costs for us. Yeah, I mean, private equity, we announced the Studio 88 exit. I think that happens next month, Harry. That'll add to the growth. Perhaps a touch higher. You know, maybe we're certainly not lowballing, Chris, so we can try and do a little bit better. I suppose that guidance around our long-term target, you know, really probably talks to the next three years.
Okay. Another question from Chris. Given ongoing market share gains in retail and continued investment in growth initiatives, why is retail fee and commission growth not exceeding peers?
Alan, perhaps I can take that. If you look at the detail, one, total fee and commission income revenue side of that was up 7%. Zero fee increase is what you're talking about. You're talking customer increase last year together with customer increase this year, split it in half of that 5% is 2.5. With zero fee, customer acquisition, clearly volumes are more digital, so you're not doing effectively higher pricing on digital prices. We're very happy with that 7%. Just don't forget, almost close on to ZAR 900 million was given away as fee give backs in the year. Clearly, that dented the growth to 7%. How do we go from 7% - 5%? Clearly, it is transaction-related costs, but more so effectively the generosity that we give in our rewards program. From memory, that was up 14%. Hence you get the net component at 5%.
Okay. One more from Chris: Please, could you give an indication of the endowment sensitivity in South Africa after hedges? Could you also provide an indication of Aldermore's sensitivity to moves in the U.K. bank rates?
Okay. Andries, we'll let Andries have a go there.
Yeah. Chris, for South Africa, it's ZAR 1.7 billion is our interest rate sensitivity. If you look at the risk management, that's a contractual reflection, so you have to look at the behavioral. Our endowment book is ZAR 355 billion, and 50% is in investment profile, so you're running a ZAR 1.7 billion interest rate in South Africa. If we look at the U.K., the U.K. Is similar, roughly GBP 200 billion endowment impact. Sorry, balance sheet, and that roughly runs at ZAR 20 million per point or sterling per point.
Okay. A question from Stefan Potgieter from UBS. Congratulations with impressive results and the confidence to increase the dividend payout range going forward. With credit losses low at only 56 basis points, do you expect fast normalization towards through the cycle from here, or do you still see further reduction in NPLs and excess forward-looking provisions keeping the credit loss ratio well below through the cycle levels in FY 2023?
I'll start off to say I think directionally that 56 is a low point. I do think from here it's upwards, but I mean, Harry, color that in for me.
No, what will be the impact? Clearly, you can't have defying gravity continually. I mean, a 16% reduction in NPL. Now, that's because of the roll rates and the appetite pullback during the pandemic. Now we effectively coming back to appetite levels. The growth in advances will play out in the impairment charge. So that's one. Now, I'm not talking just stage one, I'm talking right across the board. Two, if you look at the environment, we think the quality book that we got to isn't gonna pressurize that growth too high.
As a consequence of that, we are definitely saying it'll be up next year, but we're not saying we jump to our TTC levels in excluding Aldermore at 100-100 basis points. It's definitely a glide path and we can debate how long is that, two years, three years, but it's a glide path going towards TTC levels.
Okay. One more from Chris at Ninety One, I cannot understand flat margins with average prime likely up 250 basis points. Please explain.
Okay, Chris, we can go into the component pieces, and I'm hoping I don't bore people around. As Andries said, 50% is already in our base. What you see in Alan's slide, that's the clean number on that slide. Yes, you're now gonna see the growth on that. You've got ZAR 1.7 billion coming in across on that piece. Please don't forget, low and medium cost customers come at a price. That price is lower interest income. The benefit sits in credit impairment. Hence we're saying PBT actually is what we look at operationally. 'Cause now that will, without a doubt, effectively neutralize that impact of positive endowment. We're hoping that effectively the funding cost doesn't get significantly up, but we will go into more treasury funding. Relative to deposit side, you will then have effectively a higher cost of funding.
Okay, no more questions from the webcast.
Hi, it's Charles Russell from SBG Securities. Thanks for the detailed presentation. Just looking back on where we've come from in the pandemic, would it be fair to say that with the low credit loss experience now that you've been too conservative in your particularly retail credit underwriting, and that you could have been more aggressive? The gap to peers now, I mean, you're quite far below where the peers are growing in retail and aggregate. Is that something that you're comfortable to be able to bridge? Might there have been any longer lasting damage to the franchise as a result of not being on the front foot on credit underwriting?
Yeah. Thanks, Charles. Good questions. Okay. Well, firstly, I mean, relative to the peers, I guess they have their own strategies. Maybe different to ours, so I can't comment on their strategies. I mean, what is evident for us is they have grown faster in risk income. So it's important that word risk. So I guess let's not judge the success.
Of that too soon, you know, and one needs to see how that plays out, you know. Was really good risk income, you know, and risk as it's generated or, you know, where they're writing into different cohorts. Time will tell on that. I mean, we were very deliberate around the origination approach we were going to take with respect to taking risk assets on. You can see how that's accelerated, and it's accelerated in that retail space, particularly in mortgages. I mean, that's really been the, or one of the fastest-growing. I think we said at the interims and we made this point around mortgages. What we probably didn't fully appreciate was the activity that was spurred in mortgages around that rapid cut in policy rates, you know, over 300 basis points.
I think we watched that activity for a while. I guess you can never be perfect on this thing. Of course, you know, with hindsight, there was probably some business that we could have written, which we think would have been good risk business. But you can see how we remedied that. And we do think we're back. You know, do we see, you know, any impact of that on customer franchise? No. I mean, I think we continue to grow our customer base. So relative to, you know, relative to some of the peers around customer acquisitions, we don't see any impact. And again, I think let's see how this plays out in the fullness of time. I mean, what we do is we look at bureau data quite closely.
We see the cohorts where we are playing strongly in and holding our ground and in fact gaining ground. We see others where we've taken a deliberate decision to withdraw from certain categories. We can notice who's filled that gap. Time will tell. I think. Yeah, but anyway, we're confident where we are. I mean, I guess, you know, part of this origination story that we took has allowed us to get to this position today. If you said to me, you know, would I, as a trade-off, prefer to be showing higher growth of risk income and not being able to reward our shareholders with dividends and capital, or having the situation we've got here? Okay, well, we would take this. We would take this.
You know, with respect, particularly with respect to unsecured lending. We know we can ramp that stuff up quickly if we want to. You know, we don't think we've lost the ability to lend. We understand credit.
Alan, can I just add two points, Charles. One, we were very discerning when we went into the pandemic, and very clear coming out of that. We will not go into writing credit into a rebound. We are more confident when there's an economic recovery. We can debate when that turn and tilt happened. As Alan said, probably a little bit earlier than what we then tilted on. That was a very deliberate strategy, and as Alan showed clearly in the buckets. Two, your question on franchise damage. Now, we don't see impact to franchise damage. We think we serviced all our medium- and high-risk customer needs. It wasn't that we didn't service customer needs. That's the first thing. Because I mean, we're here effectively as a business, as Alan said, for customers.
Two is that if you are damaging franchise, it becomes very difficult to grow customers. You've got to get. You get signals from your customers, right? Clearly, we are cognizant of the fact that where we haven't on the higher risk by our buckets serviced those customers. Unfortunately, if you don't service credit, you will probably lose those customer bases. It is, you know, when you say 5%, just understand it's a net + 5. It is definitely includes some shrinkages in customer base. In hindsight, we're still more comfortable where we landed now, even though we could have less customers at some time.
Melanie, are there more questions?
No more questions from the webcast. I don't know if there's anything from.
The first question we have is from Warrick Baum from Absa Capital Markets.
Good afternoon, Alan, Harry, and team. Thanks for the opportunity. Three questions. First, just a broad question. Just your South African business outstripped your broader Africa and U.K. Businesses in the period from a growth perspective. Is it reasonable to assume that the South African business continues to grow faster than those other two geographies in the near term, call it the next three years? Then, two questions for Mary. Just on the insurance business, the 46% increase in the profit before tax for insurance was coming off a low base. Can you contextualize whether that, the 2022 period is now a sustainable profit level or are there significant one-off profits that we should be cognizant of? Then on your insurance business, again, Mary, just the funeral and underwritten life sales volumes has declined slightly.
Credit life was very buoyant, but outside of that, it seemed a bit soft. Can you just add some color and comment on whether you're seeing some sort of saturation point in your market share? Thanks.
All right. Let me start. Thanks, Warrick. I'll let Mary go. I'll answer the first, and then Mary, you pick up the second two. I mean, with respect to the geographic performance, I mean, we do think that South Africa will remain the engine for growth, certainly over the next three years. It's by far our most mature geography. The returns are the highest, the margins are the highest, the activity levels are high. I also think the South African macros, as I covered, I think are going to play well into kind of our franchises how we cover the sort of the economic landscape in South Africa. I think, you know, Sub-Saharan Africa.
Listen, we're very pleased that the portfolio actually hasn't been in such good shape for a long time. What we have got is, I mean, Ghana is a market which, I mean, we've highlighted it. I think there's challenges coming there. A slowdown in Nigeria. Strangely enough, I mean, you would think Nigeria would be booming because of the oil price. Unfortunately, what you've got there is you've got a catastrophic reduction in production. Let's not get into the reasons for that, but unfortunately, that's translating into a real fiscal issue for that country. It's important for RMB. It's gonna be tough for RMB to eke out growth from Nigeria. Of course, RMB benefits from private equity.
I guess the S.A. story definitely, you know, is gonna lead the pack. I think the U.K., you know, I think you've seen some of those macroeconomic slides. I do think the U.K. deserves a little bit of a breather. They do need to get over this massive spike in inflation. Settle in a new prime minister, you know, so let's just get through that. I, you know, I would say, you know, 2024 is, you know, we can start to see, you know, more fireworks coming out of the U.K. I think for now it's probably, you know, gonna be something similar. Mary, maybe you just wanna pick up the insurance.
Okay. Thanks, Alan. With regards to the insurance business and whether this new base is sustainable, I mean, I'd say that what you have in 2022 are still quite a high number of COVID-related claims. Also what you saw was the release of some of the reserves that we didn't need from the previous year. Hopefully those two offset each other from a base point of view. I would say that you could almost just consider this a new base because of those two offsets. What you must just take into account is that the short-term insurance business, it's still investing.
I think, you know, the strain from the growth in the short-term insurance business will be something that will impact PBT. The underwritten life business. Obviously if we ramp up traction on that should also, you know, that new business strain should impact the profitability. I’d say we are on a reasonably comfortable base if we don't have another COVID-related impact or something that drives up claims. On the traction and the growth on the underwritten life business, I think that growth is also not where we want to be. I think we were quite fortunate, and I think we made the best of the growth that, like, and the channels that we have to sell the underwritten life business.
I think we've maxed the low-hanging fruit. The customers now that we need to convert to our product, you know, for that we need face-to-face, and I think, you know, more human interaction than we currently have capacity for. FNB is now ramping up the activities in terms of getting financial planners on board, the process to convert a lot of our existing bankers to financial advisors. I really think a concerted effort on just being able to increase the number of people that can lend the integrated advice piece. Yeah.
I think when we have a lot more people that can do the face-to-face conversion, sit with people and explain to them why our policies are different and why it actually makes sense to be an FNB Life customer for, you know, your more complex life insurance needs, you know, we should really start seeing traction, you know, we should start seeing an increase in the penetration in our customer base. Pleasingly though, I think the, you know, the stickiness of that business has been good. I also think that, you know, we are starting to see some increases in just that existing book, which is reflected in your growing in-force APE on the back of what we have. Thanks.
Melanie, there are no further questions from the conference call. Okay. Any last questions here? All done. Right. Thanks very much, ladies and gentlemen. Enjoy your day further. Thank you.