First in Niue, now it adds Solomons, Fiji

Baeau Tai
Bank South Pacific (BSP), Papua New Guinea’s leading commercial bank with a 52% market share, has announced plans for the acquisition of both the National Bank of Solomon Islands and Habib Bank Ltd, Fiji Islands.

Queueing for services... customers at one of Bank South Pacific many outlets in Papua New Guinea.

BSP chairman Noreo Beangke said relevant agreements for the sale and purchase of both banks have been executed following a meeting of the BSP board acquisition committee early last month. Both agreements require several conditions to be satisfied, including the regulators’ approvals by the Bank of Papua New Guinea, the Central Bank of Solomon Islands and Reserve Bank of Fiji.

The BSP board expects the Solomon Islands and Fiji acquisitions to be finalised within the next three months. 

“This will allow adequate time for detailed due diligence and the various regulator approvals to be finalised.

“These acquisitions will further serve to demonstrate to our neighbours and to the worldwide banking community the capacity of BSP to conduct banking business in a world class, professional and profitable manner,” Beangke said.

He said both prospective acquisitions are the result of negotiations conducted over a considerable period of time. 
It is part of the bank’s strategic vision for expansion in the Pacific and its desire to better utilise its strong capital adequacy and strong free capital capacity of its balance sheet.

The proposed acquisitions will diversify the BSP geographical risk profile and long-term revenue generation capacity. 

“Both the Solomon Islands and Fiji acquisitions will not jeopardise the well capitalised status of the BSP balance sheet. 

Driving BSP... Noreo Beangke...

“Similarly, profitability and capacity to pay annual dividends will not be materially affected as both banks are being acquired on a going concern basis,” said Beangke. 

“Both are profitable,” he said. “Both have considerable capacity for positive transformation, balance sheet growth and improved profitability.”

He said the BSP board is mindful of the successful PNG Banking Corporation merger and integration together with the 2004 acquisition of the Westpac banking interest in Niue.

“These achievements give the board the confidence that the Solomon Islands and Fiji acquisitions are well within BSP’s capacity and will generate successful outcomes”.

Beangke stressed the two acquisitions will not be to the detriment of the BSP operations throughout Papua New Guinea.

In September, BSP announced an operating profit of K76.27 million for the first half of 2006, a 13.36% improvement on the K67.28 million in the same period last year.

... and Garth McIlwain

The after-tax profit for the interim period was K52.15 million with recent share prices on the Port Moresby Stock Exchange (POMSOX) valuing the bank at more than K1.5 billion.

BSP’s total assets have grown to K3.63 billion in line with significant growths in the PNG banking system.

“This growth is largely the result of the ongoing favourable economic conditions and the 2000 financial reforms that underpin the PNG financial system,” said Beangke.

Total assets have grown by K680 million during the half year, equating to a growth rate of 23.05% for the period.

“BSP is well-capitalised in terms of international standards,” Beangke said. The capital adequacy ratio of 29.10% as at 30 June 2006 confirms the bank’s strong capital position,” he said.

The improved profit was a result of operational cost efficiencies with the bank’s cost to income ratio falling from 54.97% to 52.06%. This compares favourably with regional banks in Australia.

Growth in loans and receivables from K873.54 million to K972.04 million, confirmed steady loan demand against a backdrop of low interest rates and adequate domestic liquidity.

Beangke said the recent BSP share trade at POMSoX (Port Moresby Stock Exchange) at K3.50 represented a significant increase from the K3.20 level at the beginning of this year.

In September 2005, BSP acquired a stockbroking arm, BSP Capital Limited, with the aim to fill a perceived market gap for merchant banking.

BSP managing director, Garth McIlwain said the acquisition of the former Capital Stockbrokers Ltd from New Britain Palm Oil Ltd was a further step in the board’s strategy to maintain the bank’s 55% market share.

In November 2005, BSP made history in the PNG banking industry as well as the Pacific region for being the first bank to be given a ‘B+’ local and ‘B’ foreign currency counterpart credit ratings by Standard & Poor’s Ratings Services.

Standard & Poor’s said the ratings were constrained by sovereign ratings on PNG kina because of a standard policy where credit rating of corporate entities cannot exceed national ratings. It also noted that sovereign bonds comprised a majority of BSP’s assets.

At present, Standard & Poors provides a B+/Positive/B for local currency and a B/Positive/B for foreign currency.

BSP was subject to risks associated with operating in a low-income country based on a small, developing commodity with moderate fiscal flexibility.

Standard & Poor’s said BSP had a large exposure to the PNG government with investments in government securities, making up 49.1% of total assets at the end of June 2005.

It is the world’s foremost provider of independent credit ratings, indices, risk evaluation, investment research and data.

BSP continues to upgrade its services with the new BSP regional Kokopo Banking Centre premises at Rabaul which was to have officially opened last month.
Construction of new premises at Wabag in the Highlands Region is underway. 

A new branch is planned at Moro in the Southern Highlands province and construction of premises is expected to commence before the end of the year. 
Several BSP branches are currently undergoing maintenance and capacity upgrades. 

BSP is committed to significant ongoing capital expenditure to ensure customer services capacity will continue to be enhanced.

The bank is in the process of installing 20 additional ATMs at its branches outside Port Moresby. It will continue to support the PNG Government and participate in the Treasury District Office roll-out programme when this is reactivated.

During 2007, a significant upgrade of the BSP branch teller and back-office processing capacity is planned.

This will further enhance customer service and reduce opportunities for those who conspire to commit fraud on the banking system.