The Group continues to trade in line with expectations.
Economic developments in our core markets of Ireland and the UK remained positive notwithstanding ongoing uncertainties following the UK’s decision to leave the European Union.
Net interest income was in line with the second half of 2016. Our net interest margin increased by 3bps from 2.27% in H2 2016 to 2.30% for the first three months of 2017, primarily reflecting further reductions in the cost of funding and our evolving asset mix, partially offset by the impact of an increase in the quantum of liquid assets and the credit risk transfer transaction executed at the end of December 2016.
Business income has remained in line with the second half of 2016.
The Group has continued to maintain tight control over our cost base, while making appropriate investments in our businesses, infrastructure and people. Our multi-year investment programme to replace our Core Banking Platforms is progressing in line with our expectations.
Customer loan volumes were €78 billion at the end of March 2017. New lending in Q1 2017 was in line with our expectations and included a c.30% increase in ROI mortgage volumes relative to Q1 2016. Redemptions during the period included cash repayments on defaulted loans, Irish tracker mortgages and legacy run-down books and somewhat higher than expected redemptions in our corporate businesses.
Customer deposits were €75 billion at the end of March 2017, in line with the end of December 2016. Wholesale funding was €16 billion at the end of March 2017.
Asset quality across our loan portfolios has continued to improve during Q1 2017 in line with our expectations.
At the end of March 2017, the Group’s fully loaded CET 1 ratio was 12.0%, compared to 12.3% at the end of December 2016. The Group’s organic capital generation of c.30bps during the quarter was offset by an increase of c.€0.2 billion in the IAS 19 accounting standard defined benefit pension deficit to €0.65 billion (largely due to a decrease in the credit spread over risk-free rates on long-dated AA Euro corporate bond yields used by the Group in the valuation of DB pension liabilities), and by the investment in our programme to replace our Core Banking Platforms.
At the end of March 2017, the Group’s transitional CET 1 ratio and Total Capital ratio were 13.8% and 18.1% respectively and reflect the further phase in of CRD IV items since 1 January 2017.