Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the First Quarter 2020 Results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Raziel, and I will be your coordinator for today's conference. At the end of the presentation, there will be a question and answer session. [Operator Instructions].
I'll remind you all that today's conference is being recorded. At this time, I would like to hand the conference over to Mr. Carlo Messina, CEO. Sir, you may begin.
Carlo Messina
Thank you. Welcome to our first quarter 2023 results conference call. This is Carlo Messina, Chief Executive Officer; and I'm here with Stefan Del Punta, CFO; and Marco Delfrate and Andrea Tamagnini, Investor Relations Officers. Today, I'm going to walk you through a very high-quality set of results. We delivered the best ever start to the year. We are highly profitable, liquid and capital solid. Russia exposure is approaching 0, and we have further strengthened our 0 NPL status. Net income at €2 billion was the best quarter since 2007. Q1 was also the best-ever quarter for operating income, operating margin and gross income. Costs were stable with the lowest ever cost income ratio.
These strong results mean that we can raise our net income guidance for the year to €7 billion. Rewarding shareholders while maintaining a solid capital position is embedded in our DNA and remains a priority. In Q1, we already accrued cash dividends of €1.4 billion and executed the €1.7 billion buyback. Common equity ratio increased to 13.7% despite absorbing the vast majority of expected regulatory headwinds. Considering DTA, it stands at 15%. Asset quality is excellent with NPL inflows, stock and ratio at an historical low. The cost of risk is the lowest ever with no release of overlays and a further increase in NPA coverage. We are a European leader in terms of asset quality.
Our strong liquidity position remains sound, thanks to a very diversified and sticky deposit base and more than €100 billion in excess medium/long-term liquidity. Customer financial assets increased by €11 billion. Looking ahead to 2025, the final year of our business plan, we expect to comfortably exceed our €6.5 billion net income target. This is thanks to the boost from interest rates. Our resilience has a 0 NPL and 0 Russia exposure Bank, our flexibility in cost management and our leadership position in wealth management, protection and advisory. As we have proven again and again, we will over-deliver on our promises. Our common equity ratio is expected to be close to 14% post Basel IV in 2025 and 15% including DTA absorption. This does not take into account any additional capital distribution that will be evaluated year-by-year. We confirm our business plan target of a common equity ratio above 12%.
We clearly have significant excess capital. Execution of the business plan is proceeding at full speed. In particular, our technology evolution is moving quickly, and our digital bank, easybank, will be launched by the summer. Now, let me say a few words on the overall macro situation. The economy is already showing better-than-expected growth this year. I remain positive as lower energy and commodity prices are easing inflation, and this will let the Italian economy recovered quickly from the slowdown experienced in Q4 last year, as shown by the positive higher-than-expected growth registered in Q1. Of course, we are very sensitive to the fact that many families and businesses are struggling due to the inequalities and we remain committed to supporting.
We are providing €400 billion in lending to the real economy, not to mention our many social and climate initiatives, which are stepping up. All our stakeholders, not only shareholders, but also employees, the public sector, households and businesses benefit from our excellent performance. I'm proud of our results and thank our people for their hard work. Now, let me turn to the details of our Q1 results. Slide #1. We had the best-ever start to the year.
We delivered the best quarter for profitability since 2007. Our attrition is and will remain rock solid. We achieved the best-ever quarter for revenues, operating margin and gross income even without any contribution from TLTRO. Costs were stable despite inflation and strong investments in technology. NPL inflows remained at a historical low, driving the cost countries just 17 basis points. NPL coverage further increased and we reached one of the lowest NPL stock and ratios in Europe. Liquidity coverage ratio and net stable funding ratio are well above regulatory requirements and business plan targets. Please turn to Slide #2. In this slide, you can see the impressive and positive evolution of net income, up almost 19% on a yearly basis.
Slide 3. Capital ratios are and we remain well above the 12% business plan target, which we confirm not considering any additional distribution that will be evaluated year-by-year. As already said, we have significant excess capital in each year of the business plan versus the planned target of 12% . At the end of March, excess capital was €5 billion. But if you look at Basel IV, and especially better IV after DTAs, because our DTAs in that period will be transformed into reality in 3 years' time. So we will have possibility to be really at 15%. This means that we have significant structural medium, long-term excess capital. Please turn to Slide 4 to provide some color on our liquidity.
Slide 4. We have a best-in-class liquidity position with a very sticky and granular deposit base. Retail funding represents 83% of direct deposits, of which 70% is households. A very large portion of deposits is guaranteed by the Deposit Guarantee Scheme. The average size of deposits is only €14K for households and €69K corporates. Liquidity coverage ratio and net stable funding ratio are more than adequate, higher than peers. Liquid assets are more than €270 billion. In a nutshell, we are in a very comfortable position and ISP is considered a safe harbor by clients. Slide 5. The record start to the year means that we can improve our net income guidance for 2023 to €7 billion.
Let me take you to Slide 7 to provide some color on the P&L. Slide 7. In Q1, net interest income was up almost 70% yearly and 6% on a quarterly basis, but almost 20% and not considering the net contribution of TLTRO in Q4 and when adjusting for the different number of days in the two quarters. Insurance income, both on a yearly and quarterly basis, also thanks to double-digit growth in non-motor property and casualties revenues. The total contribution from net interest income, commissions and insurance income was up 25% on a yearly basis and 2% quarterly. Operating costs were stable on a yearly basis. We had the lowest ever cost of risk. Net income reached €2.2 billion when excluding the final contribution to the resolution fund.
Slide 8. Here, you can see the strong acceleration of net interest income, up almost €500 million compared to Q4 last year when excluding the net contribution from TLTRO. On a yearly basis, we recorded the highest growth among peers almost 70% versus a peer average of around 25%. Net interest income is expected at more €1 billion in 2023.
Slide 9. Net interest income growth on a quarterly and yearly basis was driven by the spread component, which is benefiting from the increase in market interest rates.
Slide 10. Customer financial assets increased by €11 billion in Q1 due to assets under management and administration. Wealth Management will continue to be an important driver for growth in the future and our well-balanced and inefficient business model gives us a clear competitive [indiscernible].
Slide 11. The slight decline in direct deposits [indiscernible] than the reduction in customer loans that was mainly related to the rationalization of position that were EVA negative or no long efficient capital-wise due to the unusually high liquidity of corporate clients who used their own resources for investments and at the same time, indirect deposits increased. It is important to note that the trend reversed in April with €4 billion growth in direct customer deposits. Customer loans, net of [indiscernible], continued to decrease in Q1, mainly due to the use of excess liquidity buffers by client, while the trend of corporate deposits became positive again in April. The Loan to Deposit ratio improved compared to the [indiscernible] of 2022.
Slide 12. We continue to be very effective at managing costs, which are down excluding depreciation. Administrative expenses were affected by an increase in energy cost of over €20 million and will be down net of these components. Depreciation is up, and we keep investing for growth, especially in technology.
Slide 13. Our cost/Income ratio is among the best in Europe. Now, please turn to Slide 14 to see how ISP asset quality continues to be strong and one of the best in Europe. The net NPA ratio is at 1%, already achieving the business plan target and NPL inflows are at a historical low. Keep in mind that we have reduced NPL stock by €54 billion since the peak in 2015.
Slide 15. NPL stock ratio are among the best in Europe. And believe me, it is impressive to look an Italian bank to be the best-in-class in terms of net non-performing loans in Europe.
Slide 16 now. Our cost of risk stood at 17 basis points, in line with being a 0 NPL and 0 Russia exposure bank. €0.9 billion in overlays is still available with no release in Q1. Slide 17. As you can see on this slide, NPL coverage continued to grow and reached 50%.
Slide 18. In Q1, we further reduced cross-border exposure and total Russia exposure is approaching 0. Let me take you to Slide 19 to give you some color on the capital position. The common equity Tier 1 ratio is up to 13.7% after a [indiscernible] point impact from regulatory headwinds and a €1.4 billion deduction of accrued dividends. As you can see, we clearly have significant excess capital even when taking into account the remaining close to 30 basis points of expected regulatory headwinds.
Slide 20. Our excellent performance allows us, once again, to create sustainable benefits for all stakeholders and not only for our shareholders. Our people, households, business in the public sector clearly benefit from our increasing profitability. For example, in Q1, we registered €1.4 billion in taxes, €300 million more than in Q1 last year as net interest income drove increase in net income. In 2022, we gave €80 million to ISP people to help with inflection. In Q1, semis businesses received €15 billion in new medium/long-term lending, of which 10 in Italy. Furthermore, in Q1, we helped more than 900 Italian companies to reforming status, preserving around 4,500 jobs. Since 2014, we have helped more than 138,000 Italian companies. Finally, let me remind you that almost 40% of cash dividends go directly to Italian households and two foundations to support their charitable programs for local communities. Increasing cash dividends will also favor an increase in tax revenues for the State.
Slide 22. The business plan. In addition to delivering excellent results, the people of Intesa Sanpaolo are working across all the industrial initiatives of the business plan. Technology is the key accelerator of our business plan and our technology evolution is moving quickly with significant investments. In particular, let me underline the strong progress of two key pillars. Isybank, our digital bank is already running its pilot phase of selected clients and we launched commercially by the summer. Our artificial intelligence program was launched with more than 60 dedicated IS people and a target of around 160 use cases to support the business plan initiatives. Thirty are already [indiscernible] and other 40 operational by the end of the year. Both Isybank and Artificial Intelligence solution will leverage the two cloud regions in Turin and Milano built as part of the Sky Rocket deal with Google and team. You can go through the details of the plan initiatives in the next 11 slide and on Slide 32, you can see our leading ESG position in sustainability indexes and rankings.
And on Slide 33, you can see what we are doing for our people. I want to highlight that diversity and inclusion is a priority for Intesa Sanpaolo. The largest private employer in Italy. The key international diversity inclusion rankings place our group in leading positions in Europe and worldwide. But for the sake of time, let's move to Slide 36 to see how ISP is well equipped to succeed in a challenging environment. Slide 36. The Italian economy is strong, thanks to solid fundamentals, world-leading outsold wealth, and very resilient SMEs. Growth for this year will be higher than previously forecast and lower-than-expected energy prices will help easy inflationary pressure. And as inflation slows, the economy is set to [indiscernible].
Slide 37. As you can see here, we are far better equipped than its European peers, thanks to our rock-solid capital base, strong liquidity position and a resilient, well diversified and efficient business model. Slide 38. Let me recap the key points demonstrating how ISP is well equipped to further succeed in the future. Our resilient, diversified and profitable business model is over delivering. Our capital position is and will remain strong. ZNPL bank status has already been achieved, and our Russia exposure is approaching zero.
Net interest income provides a strong tailwind. We remain a wealth management, protection and advisory leader with fully owned product factories and more than €1.2 trillion in customer financial assets. We are set to succeed in any interest rate environment. We have high strategic flexibility in managing costs. Our liquidity position is strong, and the execution of the business plan is proceeding at full speed.
To finish to Slide 39 for the outlook. The best ever start to the year means we can comfortably upgrade our full year net income guidance, allowing us to reward our shareholders in a generous way, always a priority for ISP, and me personally. This year, we will return at least €5.8 billion, taking into account the dividend we will pay in May, the second tranche of buyback completed in April and the interim dividend that as usual, will be paid in November based on the full year net income guidance. Additional capital distribution will be evaluated at the end of the year.
I want to highlight that all our stakeholders and not only shareholders will benefit from our performance. Thank you for your attention, and I'm now happy to answer your questions.
