Good morning, everyone, good to see all of you. We want to welcome you to Equity Group Holdings PLC Quarter One 2026 Financial Results Investor Briefing. I want to kindly request all of us to be upstanding for the Equity anthem.
[Break]
Thank you. As you remain upstanding, I want to invite Reverend Evans to open for us with a word of prayer. Reverend Evans.
Thank you very much. Let us bow our head for prayer. Father God in heaven, this morning we are grateful for your faithfulness, for your goodness, and your mercies that are new every single morning. We want to thank you, Lord, for the gift of life and health, and thank you for the gift of one another. As we gather here this morning, Lord, for Q1 results, we pray that, Lord, you be with us. We commit this meeting into your hands, praying that, Lord, you're going to give us the grace and the strength, and especially our team leader as he leads us in this, oh God. As we look back, we are grateful for the milestone, the achievements, and all that Lord been able to do this far. As we continue, Lord, it is our prayer that your hand will continue to rest upon all of us.
You bless the work of our hands. You bless our families. You continue to grant us strength that, Lord, we may be able to deliver as per our expectations and our aspirations. We thank you, Lord, and we honor you for this, our humble prayer of faith. In the name of the Father, the Son, and the Holy Spirit.
Let's take our seats as we also appreciate Reverend Evans. We once again want to invite you to the release of Q1 2026 Equity Group financial results. For those who are following us online, especially members of the fourth estate and also the investors and analysts, the questions that you might have, kindly feel free to post them online, and our team leader, together with the management, will be able to respond to those questions. It's now my honor to invite our Group CEO and MD, Dr. James Mwangi, to take us through the Q1 2026 results. Welcome, Dr. Mwangi.
Thank you very much, Alex. Deeply honored this morning to welcome all of you to our investor briefing. We regret that it's happening at a time that we are going through the challenges of withdrawn public transport, logistics. I'm glad that the online platform gives our investors, our shareholders, our analysts, and the media an opportunity to follow us online. We'll try and compress a little bit because the message that we have remains the same. That this organization is going through a strategic transformation, and we'll continue to highlight the outcomes of all the initiatives and the formation of the new Equity.
We remain focused on our core calling, the essence, the purpose of this organization, to drive change in society, to help communities and individuals to transform their lives, enhance their dignity, but more importantly, empower them to unlock opportunities for wealth creation, to create a prosperous society. That remains the central focus of what we do, and our delivery mechanism is really to achieve that single objective. When you look deeper into the strength of this organization, it's built on our governance structure. A governance that has consistently delivered on providing insulation for this organization to continue to manage risks. Essentially, we are in a sector, the financial sector, where trust is the currency, and essentially, we need to ensure that trust is maintained.
We maintain trust through the governance practices, the checks and balances that we build, oversight, compliance with regulations, and we do that driven by our people. The depth and breadth of management and policy organs, particularly the board, give us assurance that we have the right people who make the right decisions and consequently continue to deliver on the right outcomes. In sense of operating environment, we all know that we had very strong hopes that the global economy is on a recovery path. We see the region was leading that recovery, becoming the fastest growing region in the world, with Rwanda, Uganda, Ethiopia, South Sudan being on the top 20 fastest growing economies in the world, and Tanzania, DRC, and Kenya not being left too far behind.
Essentially, it becomes a regional momentum, which then helps to balance off, whether it's physical positions, whether it's capital flows, whether it is a shock, then we're able to leverage on the diversity and cycle that each country goes through. However, despite this, we also see that reforms that the countries have been going through have been delivering better macroeconomic positions. When you look at IMF view about the economies we operate in, if you look at the rating agencies, what they think about the country, we see all the countries are really rated to have a stable outlook. That really gives us confidence.
Hence, the strategy that we have been formulating to build back this organization is about building resilience. Because we know despite this outlook, we could really have shocks. At the moment, we are going through one of the most consequential shocks related to oil and the Gulf region, the challenges of the wider Middle East related to energy. The only way to manage that and insulate that is to build the competence of resilience within our organization. We have used four major plans to build that resilience. The first one is liquidity, ensuring we have liquidity that can wither under long, prolonged shocks. Capital buffers that could be able to hold.
Like we all see a full page in the Business Daily reflecting on how Equity has used capital buffers to clean its loan book such that we are not pushing non-performing. We recognize loans that are not performing, and we write them off and be recovering them, and it becomes more of miscellaneous income as opposed to keeping non-performing loans. You can't do that. You can't lead the industry unless you have significant capital buffers to be able not only to absorb such a shock, but also to take advantage of opportunities for growth. Like we will all see in our numbers that Tanzania, Rwanda, Uganda, and DRC have really registered very impressive growth. That growth still is being funded.
Of course, the biggest asset we have in managing shocks is the agility that we have built by becoming technology-led. When you create platform capabilities, the response is just tweaking the platforms in terms of adapting to new environment. Adoption of credit scoring engines helps you to quickly adapt to an environment. As the environment becomes challenging, you tighten. When the environment becomes more enabling, you loosen the credit mechanism. The use of AI helps in enhancing the productivity of our staff quite significantly. The last is maintaining high quality asset portfolio. We're very cognizant that it's best practices to write off loans when they are not performing so that you remain a clean balance sheet.
You recognize losses as they occur. That's how we have managed the challenges of operating environment by creating agility and creating sufficient buffers that allows you to underlie the challenges as they come. We are optimistic that this capability has now almost helped us to recognize that shocks will always be with us. That we manage the bank with, and the group with that in mind. That it's us who needs to be strong to build the capability and the competence to operate in a volatile world characterized by shocks. Because of this, increasingly, we have become systemic.
These initiatives has not built a larger bank, a higher quality bank, a strong bank, but it has positioned us systemically in the market, having a dominant position in the region and being systemic almost in all the countries we operate in. That really gives us the competence to orchestrate and facilitate cross-border trade, regional trade, and capital flows within the region. That gives us an advantage to continue to outperform the industries. The infrastructure we have built in region in a very concentrated, integrated way brings out the aspect that we are not operating in a market of nations, but a market of a region.
We have a picture of 350 million people because the cross-border trade is facilitated by all the countries being part of the East African Community. Essentially, it's like operating in one country, centralized policies, centralized systems, because regulations and environment is within. That allows then the scale and facilitation of cross-border trade. That footprint has really now become a major core strength, like our IT capability, to continue to give Equity incredible strength. As you can see, it is densified, particularly to take financial services to the last mile. When you talk of 1.4 million merchants, when you talk of 86,000 agents, what it has done is to help us the capability to have significant coverage that delivers ease and convenience.
That gives us then the ability to crowd in customers, and that is what has given us 22.7 million customers on the same platform. You could imagine the data we get from that when we analyze the insights, the ease of decision-making because of that. That is the Equity we have been building for the last 10 years. I'm really glad it has taken shape, and it is reflecting in the way it is performing above market performance and now starts to increase its market share. If we go to the strategic overview, we see that strategy is delighted by a very strong strategy that focuses on a framework of the African Recovery and Resilience Plan. A Pan-African strategy.
It's not, as we have said, it's not country-centric, it's regional-centric. That's why we've been able to unlock a single market perspective. That has been built by the strong Equity brand. The reason why Equity is such a strong brand in the region is because it follows trade routes. It is taken, the brand is taken to the next market by traders, by the customers themselves. We don't need to introduce the brand, it's introduced by trade patterns. Then our organizational culture of customer centricity, the use of the need to put customer at the center of everything we do, being a people sensitive brand, and, of course, a business model that balances social investment and economic pursuits.
The twin engine of having an Equity Group Foundation and an Equity Group, the commercial engine then helps to get the two to orchestrate the transformation of people. The foundation, the social engine capacitate and release people and put them on the ladder of economic transformation on the economic engine. The high volume, low margin model allows inclusivity, it allows affordability, and that explains the 22.7 million that the group has been able to put together. The consideration of the customer, not just the product offering, but how they consume those products. How easily and conveniently, and particularly adoption of technology, where up to 98% of our transactions are happening outside our premises with 89.5% of the transactions happening on digital platforms.
The convenience we have delivered, by making banks, banking to be just clicks on mobile phones or on laptops or, that is what has delivered unparalleled. Of course, thinking about our staff, the capability, the convenience, and being an employer of choice. Essentially all this is being brought by the capability we have put at the disposal of staff, capability we have put at the disposal of customers, and capability that allows execution of strategy. That is because of reengineering our processes and having systems that have the capacity to deliver on all those.
That is really then put together through a very effective governance structure that has capability, that is visionary, that is globally exposed, highly competent, and structured in a way that it works frictionlessly. That is what has built Equity. When you look at then the impact of all these in the transformation, you see an organization going through change. But change that is focused to impact an entire continent, and that is mapped on the needs and aspirations of community. Looking at where we are in the evolution of our economies and playing a catalytic role to ensure development takes place. We are strong believers that private sector have a huge role in financing development.
That is why we are obsessed with agriculture, manufacturing because we believe those are the drivers without forgetting the social investment, particularly in health and education, so that you could have the right outcomes. Knowing scale is everything. Scale is everything, hence having the ambition of 100 million customers so that we can enjoy the economies of scale and that we can have the network effect that will be necessary to build capability. Then, of course, when you roll out this then you start seeing how it takes shapes in the strategic outcomes. We can see it's a challenge, it's an ambition, and we are honest and humbled to say this is an ambition we set for ourselves to deliver.
We are convinced we'll deliver. That explains why we focus on technology, because we have realized we have to use the levers of technology. We have to empower people. We have eventually to become a platform. We believe by 2030 we'll be able to deliver on this big, big dream. We may be behind our schedule as reflected. When you start looking where we came from, agriculture, five years ago, we had only 3% of our loan book being in agriculture. We're now three times that in five years. If we are to be three times where we are in the next five years, we'll have delivered on our vision. That's why our systems is what we'll leverage on to build these numbers.
Let's look at the banking group because, as I said, we're a financial group that is very strong in banking and insurance. Banking is where we started up front. That's where our scale has been achieved, and we are glad that, other than Uganda, that is adjusting slowly, every other subsidiary is in a very good place, particularly when you look at return on average asset. I take real pride that it took Kenya 16 years to reach a 4% return on asset. We can now see Rwanda is above 4%, Tanzania is above 4%, DRC and Uganda are coming out well. You see the region is maturing and has matured very, very quickly.
If you look at return on equity, we now start seeing Rwanda, Tanzania challenging Kenya and outperforming Kenya despite its maturity. These are young investments. We see the headroom of growth, particularly supported by the tailwind of rapid growth in the region, transformation and modernization of the region. When you go behind these returns, then you see the biggest achievement we have made in terms of banking group is the diversification. This time last year, first quarter, the region subsidiaries were only contributing 47% of deposits. They are now at 50. In terms of loans, they were contributing 48.
They are now at 54, suggesting they are growing much faster than Kenya and suggesting that we are quickly consolidating our position of being a Pan-African bank and Kenya becoming our headquarters. When you look at assets, the last time last year, this time we were at 47, now 52. Broadly, when you look at every parameter, we are now more than 50% a regional bank and lost the view of us being a Kenyan bank, and we are glad that that has really achieved. I think the most significant one, really, to look at is the return on equity and return on assets because it gives you sustainability and quality of this expansion. It's not expansion for the sake of it. It's to achieve the business objectives.
I would like maybe to add an extra to that capital deployment has been optimized. It's not. That is why we are comfortable. Because of being able to optimize capital, we are sufficiently funded by internally generated cash to sustain the momentum of regional growth, because the capital is drawing the right return. When we move on and do a deep dive at the balance sheet, we see what we have really been looking forward for many years, bouncing back. We have been debating where will growth come from. We see this largest balance sheet in the region is growing at 16%, and that's when you start having that growth of a balance sheet of KES 2 trillion growing at 16%.
That's a 100 and It's a huge growth, KES 300 billion. KES 300 billion is a Tier 1 bank, but that is just an annual growth. That tells you how systemic this organization and how likely economies of scale is likely to maintain. We're also very grateful that our shareholders continue to maintain the interest to fully capitalize this bank and maintain the gearing ratio pretty well, meet and exceed the capital threshold required to move on. If we look at the asset quality, because it's one thing to grow, it's another one to maintain quality of asset. The strength of a bank is not based on its balance sheet, but the quality of the assets that constitute that balance sheet.
We are glad that our NPLs have been on this journey. last year our first quarter, our NPLs were at 14%. We're down to 10, giving us confidence that we'll deliver on the promise that we'll close this year with single-digit NPLs. What gives me confidence is that it's not just NPLs are coming down, but NPL coverage is increasing from 67 to 72, showing again recovery is not leading into all the provisions being written back, but recognizing that the rapid growth we may see with this 16% may translate into growth in loan book, and we better grow the loan book with coverage. We are optimistic that we'll continue to deliver this.
The second aspect of it is how we stand in the market, and we take pride that we are outperforming the industry. NPLs for the industry are still at 15% when you are at 10%, so that positions you unique, and we hope the market will really recognize the unique leadership and managerial capability that we have built in this bank and the unique capability of our staff, even in difficult times, to be able to deliver superior outcomes to the industry. It speaks very highly of the quality of management and staff in this organization.
As I have always said, I regret that we are not able to quantify the value of the human asset that this organization. When you look at this, when it adapt, outperform the industry to this extent, then you could really be able to grab. This slide speaks to me as a person. We came from microfinance. We became a micro, small, and medium bank. We have gone through a transformation and change, but we have not changed who we are. We're still the bank of the small, medium enterprises.
We have grown to a over KES 2 trillion balance sheet as a regional leader, we have remained true to our promise to lift people, to continue to be a vehicle of transforming the unbanked and the excluded. Doing 37% of the entire micro, small, and medium loans in a country with 38 banks, it tells the story of Equity and its commitment to the people and recognition of where it is needed most. Equity is needed most to change lives, enhance dignity, open opportunities for wealth creation, this is the segment that is needed most. We take pride that our loan book to SMEs or our disbursement to SME is at least 3x the nearest bank.
It shows the commitment that we have to the population and the citizen. When it comes, we see how efficient we are, again, outperforming our peers, the peer Tier 1 banks in terms of efficiency, in everything we can. The insurance group is coming out very well. I know these slides will be in the investor briefing. You can go into depth. You can see it has taken market leadership at a very early age when it's still a startup. Barely 3 years old, we see that group becoming significant, providing leadership and, hopefully, like Equity Bank, transforming the insurance industry. We really forecast. That is not just at the group level.
When you look at the life business, when you look at the general business, when you look at the life, the health business, they all are performing well and being very steady and giving opportunity to the market. Very good start. We recognize it's still a small component of the Group, has all the trappings of becoming a major Group and balancing. As we have said in the past, we believe that banking group and insurance group complement each other. One is short term, the other one is long term. One is on balance sheet, the other one is off balance sheet. One owns asset, the other one holds asset on behalf of people. There is quite a lot of synergies that the two complement each other.
During difficult times, we always see coupling the two always help to mitigate the challenges because they complement each other and respond differently under stressful conditions. We are really committed to getting the insurance becoming big. The investment bank is going to be increasingly very important as the region grows and investment become a major financial tool to use to unlock that growth. We are really looking to strengthening the investment bank as we are doing to do more.
After COVID, people relaxed a little bit and started coming back to the branches, and we could see the curve on digital channels moving from a high of 89.4 to 83 as people got back to agents, to branches, and you could see the peak that happened. Look at where we are now. We are at higher levels of adoption and use of digital than even at the peak of the COVID period. People have moved on, and this adoption to us is what will transform this Group. This is what will make the Group achieve the 100 million customers because increasingly, the customers' decisions are transforming us into a platform of self-service. It's where we compress distance, we compress time, and customers are able to onboard themselves.
They're able to consume, they're able to transact whatever time, wherever they are. That then is the wide choice we have given customers for self-service, as you can see. The tools we have put at their disposal is what will drive this bank going forward. You can see customers are even moving away from variable cost, like the way they moved away from fixed channels to self-service. That tells you more about the efficiencies we are likely to have when you remove fixed cost and variable cost. Customer, you don't have to invest. The customer has their own phone. You don't need to have staff to serve them. They self-serve. This is a phenomenon that is very unique in this region, where the customers are becoming increasingly digital.
Whether it's because of COVID, whether it's because of demographics, whether it's because of dominant telecoms that has done a very significant role in sensitizing, we think this is the future of operating businesses. We are really glad that there is no constraint and that we have the capacity to offer choice to the customers. Technology enabling every decision. We are now at the era of AI. We are now beyond the digitization. It's now AI. The way we have embarked on this is saying, and we said it before, and we are really glad to hold ourselves, is invest massively in our staff.
I'm glad out of 13,000 staff, 12,700, over 80% of our staff are now conversant with AI, different levels. We have almost 600 of our staff enrolled in a master's degree in AI. We have technology coming to build on what we have been building. As earlier on said, we are banking on our staff to really drive the African agenda, to use the twin engine, to use the systemic infrastructure we have built to transform and to catalyze the transformation of the African continent using technology. It's not enough to say we are technology-led until the staff are conversant with use of technology tools. The power of this is to enhance the productivity of our staff.
They can do jobs faster, better quality, and much more for the same amount of time. When you look at all these put together, the non-banking group continues to make inroads, still early, logging between 3%, we are happy with 3%. Why are we happy with 3%? Because it's 3% of a very big group. Large, a KES 2 trillion balance sheet, 3% is a very big sized organization of a startup. We hope that we'll see more and more of this, and we would like to allocate more and more capital. The good thing, maybe one.
The good thing, if you look at the returns, if you look at the insurance return on equity, 65%, investment bank 24%, insurance 40%. Non-banking total is 36 compared to the banking industry at 24. Capital allocation is optimized, we can invest because the returns are almost double what we get in the banking industry. This group will be transformed by achievement, and this is what we are saying. This is quality income. It's not balance sheet-based. It's not capital consuming. We trust the market to lead it right and start to price us differently in terms of multiples. Yes, Alex, we can move on.
When we look at the Foundation, which we said is the social arm, I think we take a lot of pride that the brand has been given a human face. It's a brand of compassion, investing in communities, looking at social investment in health, and you can look at health and education and look at the amount of money that we are deploying in those sectors to transform society. Also the investment in the real economy, agriculture, and enterprise because that's what constitutes 96% of the livelihoods of the people and support the people. We truly have taken our seat as a community bank, as a society bank, and a bank that really enables society, enables community, and that is what protects this bank.
The biggest protection of this bank is that it's the face of community, the aspirations of the community, and fulfills the desires of individuals in community. The brand it's through advocacy within community. Singling on one item that I really take pride of, we started this journey in 1998 of really looking at the most gifted within our society and saying, can we prepare them for leadership? Because everybody gives way. Today, under the Wings to Fly and the Elimu scholarships, we have had 60,000 high school scholars. 33,000 of them have made it to transition to universities at the rate of 82%, and you can see how they are spread.
Globally, U.S. and Canada, 700, Europe, 100, Asia, 150, back home, best institutions broadly in South Africa, we can see what the numbers are spread. It's the demonstration of that our decision was right when you look at 246 of these scholars. Of the 1,115 scholars that we have been able to set out, send out of the country on scholarship, 246 have gone to Ivy League schools. They're well-spread, 87% of them in STEM courses, suggesting that this cohort can really provide leadership capability at enterprise level, at corporate level.
With the networks they are globally building, with the exposure they are getting, the quality of education, we can bet on them to help in the taking the transformation of continent to the next level. The foundation continues to really deliver on the social, but increasingly, the foundation is now focused on sustainability. Today, I woke up to a headline that most likely we are going to experience a El Niño that will be the most severe in 150 years. Like we are moving to the next phase of climate change, we need to build resilience. We need to ensure sustainable practices, and particularly for the small-scale farmers. We take pride that we have been voted as the bank with the highest number of loans in mitigation and adaptation to climate.
Increasingly, partnering with strong partners so that we can take our initiatives to scale so that we protect enterprises, we protect the customers, and also protect nature. That intersection, and increasingly, this is where we think we can provide great leadership. So the Foundation continues to really propel. Because of the governance structure, we said our strength is in best governance practices. We have attracted global banking partners, funding partners, and implementing partners to an extent that the scale, the program scale, is one of the largest scales in the world.
That, we also have attracted partners to help us manage the risk, in the foundation of implementing, so that we're at a balanced. Then, leads us to really look at the numbers. We talked about a 16% growth rate, surpassing from KES 1.7 billion, to surpassing KES 2,300 billion growth within a year. That growth is led by Deposits, that as we have seen, has grown by KES 200 billion, supported by a capital shareholders' funds that has grown by almost KES 100 billion. That's how KES 300 billion has. As we can see, that KES 300 billion has gone to loans. Almost KES 70 billion have gone into loans.
As we can see, we have KES 150 billion going into cash and cash equivalent, demonstrating that our readiness and our capability to fund growth and to support our customers because of being cash rich. That 16% growth rate of the balance sheet speaks of almost that kind of growth. We saw it nearly six years ago, suggesting we have bounced back. The transformation has delivered on what it was intended to do. Position the organization to be fit for all our times, to be fit for our demographics, to be fit for our economic opportunities. That is why we have bounced back to the traditional growth that we were used to.
Six years of very huge, transformational initiatives that has now really brought the outcomes. This balance sheet, as you can see, is very, very agile. Very, very agile. If you add cash and cash equivalent with government securities, it means out of the KES 2 trillion, KES 1 trillion is available for disbursement. That is the scale at which this bank is and can fund significantly within the region. It's something we are really, really focused on. The growth of the deposit shows the trust the organization is enjoying in the marketplace. It's the confidence of the shareholders increasing their capital by 30%. If you look, the increase in capital is 2x the growth rate of the balance sheet.
Speaking of the ability of this bank to grow both organically and through mergers and acquisitions as opportunities arise, because they say cash is king. KES 1 trillion of the KES 2 trillion balance sheet is cash. That is. It's very well leveraged and supported by the capital base of the organization at nearly KES 350 billion. If you take KES 350 billion and take 25% of it tells the organization at 25%, it has a single lending obligor of nearly KES 80 billion. It can do process. We have graduated to a position of being able to fund infrastructure at a single lending obligor of KES 80 billion. That is how transformed the balance sheet has been. This change has landed very well.
When you get a balance sheet that becomes agile, becomes liquid, well capitalized, then, as a financial institution, as a bank, then you see you are very well positioned to respond to opportunities in the banking. The bigger impact of this transformation of the balance sheet is on the P&L. That's where the test is. Is it producing the right outcomes? We see net interest income growing at 15% and matched by non-funded income growing at 14%. That ability to grow both non-funded and funded at almost the same rate is the outcome of the transformation that we have talked about. Maybe the person who has really played a very big [Terence], you can raise your hand. Or even better, stand.
There's a man I wanted to recognize and put him at your disposal. If you want to get more insight, he can take the questions. He joined us from maybe the largest bank on the African continent. He's South African, has really the technical knowledge. We can see he has helped to reposition, restructure the balance sheet to deliver the non-funded. He's managing the balance sheet. Some people call them treasurers, he's very well supported with trade finance so that we could be able to get to this unlock. Again, we are adapting, having the right people in an organization with the right skills, with the right competences, you are able to do. We are now delivering even on helping countries to structure their debt. Why?
The balance sheet is big. You can be able to manage. It's called debt management or national debt management. That capability will help us such that we can team up with the Development Finance Institutions in the region to help structure. Thank you very much, [Terence]. If you look at then total income grows at 15%, but as we said, the efficiencies are creeping in. Other operating expenses down 7%, provisions down 18%. We also about the massive investment we have in people, getting the right people in place, training and developing an entire staff cohort of 13,000, equipping them, making them ready. Those, to a great extent, that's one of and we see that growth normalize. We said it's better invest for the future.
Build the complement that will build the future. Don't build brick and mortar and forget the brains that will learn. It's not enough to build a plane if you are not building and developing the pilots to fly the planes safely and to keep the customers of the airline safe and delivering them to their destinations. Total cost growing at 4% when total income is growing at 15%. Positively, the doors opening up, and that gives us a 31% growth in profit before tax and a profit after tax of 24%, which goes straight to the shareholders with earnings per share going up 24%. The most significant thing to note is the non-funded income.
Last year is when we first experienced that, huge transformation, in the structure of our income, the quality of the income. I was asked many questions. Is this sustainable? There the answer is, we're even performing better than last year. I can commit that, we will see better and better chances by next year we'll start seeing the shift. At the moment, non-funded income is 40%, funded income 60. I expect by next year we'll start seeing 45, 55, 2028 chances we'll see the group having more non-funded income because of the technology capability than funded income. That is likely to be a scenario. I hope, Terence, you can bring it earlier. That is how we are seeing the change, the transformation.
Efficiencies we are seeing. I'm excited that other operating expenses last year had a decline. This year has a decline. I'm optimistic we will continue to see that as productivity of staff increase significantly because of using AI, productivity increasing significantly. Using AI in decision making, the quality of decision, particularly loans, NPLs continuing to come down. We expect this P&L to really optimize and have assurances that the shocks and of cycles will not be disrupting because only less than 50% of our income will be from our balance sheet. For investors making decisions, this is no longer a traditional bank.
I hope we'll see investors rethink how they price their investment because we're increasingly becoming a technology group, I hope we will migrate to valuations of technology platform doing business in financial services. Not a traditional bank, but a platform with financial licenses. More importantly, significantly, reducing reliance on balance sheet, on balance sheet income, and doing transactional payments, non-funded income, to drive the P&L. What that also means is that 50% of the P&L doesn't require capital deployment. It's off balance sheet. That truly will speak of the efficiency in capital deployment. That also explains why. Because this question keeps on coming. How can you sustain this growth without raising capital?
It's because as we grow, less and less of the balance sheet require capital, because we are seeking to drive non-funded costs. I hope that helps the investors to really appreciate we will continue to become capital light in terms of balance sheet. Brent would be able to articulate this. If you have a question, Brent would be able to jump on these and articulate more. We are also excited that when you look at the ratios, everything seems to be grew. One would ask, why is return on equity? It's simply because the balance sheet is growing faster, much faster. That by the end of the year will settle down when profit will have accumulated during the year.
This is upfront growth of balance sheet. Sweat that balance sheet, come, bring into profit, and I expect that return on equity this year to approach 30%, exceeding by far where we were last year. In terms of ratios, Alex, if we go to ratios, deep into ratios, we see the capital at core capital at 17.7 against 10%. That tells you how well capitalized, how big the buffers are. They are 70% above the legal requirement, and 19% versus the legal requirement of 14%. That also people who are James, you have said you, we want to be in 15 countries by 2030. We need to reach 100 million customers. It's both organic and acquisition, but we are very well positioned to do that.
When you look at liquidity of 65%, as we earlier said, more than 50% of the balance sheet of our KES 1 trillion is in cash and near cash. The bank could never be better positioned to unlock the opportunities there are. We can see the efficiencies. Despite what has happened, we have reduced our interest rates significantly from near 24% to 16%, the margins because of improving asset quality. That really explains productivity of staff is coming on, and that explains. The most visible cost you may want to note is the use of technology, the productivity of staff enhancement. We are reducing our cost-to-income ratio, and during the year, we have moved from 51% to 54%.
That explains why we have a forecast that we should be able to go below 50 by the end of this year. Cost of risk, as we see, coming closer to where we anticipated it, 1.2%, and hopefully next year going to below 1% cost of risk, and then be at a very equilibrium point to unlock the value of the growth we are seeing building up. When you compare our projections and promise to the investors against actual, we are outperforming our guidance. We are very happy that almost in every parameter we have outperformed that. The momentum is building. Momentum is building.
We are aware, investors thought this guidance was very ambitious, particularly on deposits, but we are happy that we have even exceeded the upper limit of our guidance in terms of deposits. What does that mean? It means we are going back to our original position, where this bank is founded on the liability side. It's the liability franchise that anchors this bank. That growth, loan book, being above the lower limit, that also gives us confidence that the environment is at a light position. Return on average assets, maintaining that growth. Despite that growth in assets of 16%, we are at the peak of 4% return on assets.
As we said, subsidiaries at 53%, light above the mid of the range that we had given, and the same above about subsidiaries contribution. What it means is that we now have our fingers on the pulse and the drivers of this organization. We understand, we can pull the levers. We, because of resilience, we're able to respond quickly to environmental changes and maintain the equilibrium in terms of performance. The management also has the capability and competence now to understand the business and be in control other than be shocks putting us out of track. We're able to navigate and manage the shock, I'm very proud to be leading a team that has that competence and capability.
Not to take control even when waves come, even when turbulence comes, when headwinds comes, the team is able to navigate comfortably without discomfort in terms of variance with the trajectory. We are able to keep on the right path as promised and deliver on time and in a qualitative way. That broadly is what we had for you. We have told you our view. We invite you now to interrogate these number, to seek clarification, to express your views and opinion and I have a team of colleagues who will help direct the questions. Thank you very much for the attention. Who have the first question? I took a lot of time to explain. Looks like we don't have a question.
If oh, very good. Alex, there are online questions. We can be taking an opening question from the floor. Very good. Let me take the questions. The first question on LinkedIn is from Joshua. He's the founder and CEO of Trade Africa Group. I would like to inquire if Equity Bank has any investment for initiatives meant to accelerate the implementation of the African Continental Free Trade Area? The answer is yes. As we said, the reason why we have strengthened trade finance is to orchestrate that trade. The reason why we have focused on the expanding to 15 countries is to be able to anchor that trade. The reason we have chosen to be systemic in every country is to be able to support grow cross-border trade.
Maybe I will go to the MD of Kenya and the MD of DRC. How are you supporting, and what tools and products do you have for the African Continental Free Trade Area trade financing and cross-border business?
Thank you very much, GCEO and Joshua for the question. As a bank, as GCEO explained, one of the core things in our strategy is first opening trade routes, which is something as a Kenya business we've been vested in. We've vested that in a couple of ways. One is first to set the capabilities that enable us to open those trade routes. So we've found ourselves having a Chinese desk. We've set up a very vibrant European desk. We continue to set up desks in areas which enables us, first of all, to be able to open Kenya businesses to the world.
If you saw what we did last week, where we were able to play a very pivotal role in the Africa Forward Summit, again, bringing our abilities to introduce businesses from out of Africa into Africa. We've also been able to do that within Africa, which is to your question, Joshua, around the Continental Free Trade Area, in terms of opening trade routes between various markets to Kenya by enabling us to take Kenya businesses into DRC, for example, where we've been able to do that with over 20 trade missions. We've strengthened our trade routes in Uganda and Tanzania and the like. When you talk of products, we've also revamped some of our trade finance products, and that's testament to part of what GCEO did pre- present in terms of our growth of non-income growth.
We are able to facilitate trade using our normal LC, which is available to all our customers, irrespective of your size. If you need to trade across borders, we will be able to do that. We bundled up that with very easy, FX solutions for you as well, that when you come, you will find the whole package in-house in Kenya as a market. Thanks, James.
Thank you. Warui?
Thank you, Dr. James. I think, in addition to what Kenya has done in the DRC, we've also taken advantage on our position as a systemic bank. We've observed surge in public investment basically on how the DRC is opening up on our trade corridors, not only within the DRC, but as well linking to all the neighboring countries. The most, I think, important investment was in terms of internal capabilities. What we have done, basically, beyond the technology infrastructure, we've also attracted great talents.
Those talent can really help us to get into the discussions with many partners, not only with the government, but as well as public sector, but more and more with DFIs. We're through our power product capabilities, so we can play a role in sustaining trade, not only within the DRC, but linking to all the neighboring countries. Thank you.
Maybe Terence, from a trade finance treasury perspective. Maybe we could have a mic go to Eva, the Director of Trade Finance also.
Yeah. Thank you. Thank you, Dr. James. What we have also focusing on, particularly over the past few months, is to deliver structured trade financing solutions. We worked on bundling those structured trade finance solutions with treasury solutions, which are tailored to specifically meet our client requirements and needs. It's client-centric solutions that we have worked on. You would see also. That's one of the reasons why the non-funded income line has increased over time, is because we have structured those solutions to solve specific client-centric solutions.