Increase capitalisation and expanding network

Rowan Callick



Papua New Guinea’s largest financial institution, Bank of South Pacific, is establishing a network to rival that of ANZ and Westpac in the Pacific islands region, says its new chief executive Ian Clyne.
Its current bid for Commonwealth Bank’s Fiji assets marks an intensification of that drive.
Its next targets, says Clyne, are the National Bank of Vanuatu and a Samoan bank—either the National Bank of Samoa or the Samoan Commercial Bank.
No figure has yet been formally placed on BSP’s bid, but the Commonwealth Bank bought the Fiji government’s 49 percent stake in the Colonial National Bank, which it now fully owns, for $F28 million three years ago.
This would value the whole bank at about $F57 million—though the Fiji currency was recently devalued by 20 percent by the military-installed government.
Westpac and ANZ both have more extensive operations in Fiji. But Colonial, in whose name the Commonwealth continues to operate there since buying the parent insurance house in Australia, has been doing business in the country since 1876.
It bought control of the ailing state-owned National Bank of Fiji to extend its operations from life insurance, investment and health cover to banking.
Now the Commonwealth Banks appears likely to exit the country, whose economic future appears rocky.
But the government—whose relations with Canberra are extraordinarily frosty—is relieved that the net result is set to be greater diversity within the industry, bringing in a PNG operator to replace an Australian firm.
BSP has persisted with its bid in the face of growing difficulties for the finance sector with the Fiji government—which recently sacked and replaced the board of the national provident fund—the country’s biggest investor—imposing increasing conditions on commercial banks via its central bank.
Growrth strategy: The banks have been told to cut their interest rate spreads to four percent or below by the end of the year and to increase lending to small business. And foreign exchange controls have been introduced.
BSP was originally owned by the National Bank of Australia and was taken over 16 years ago by a PNG-based consortium led by Credit Corporation, alongside the Roman Catholic archdiocese of Port Moresby. Credit Corporation has since established a Fiji operation.
Noreo Beangke, a former PNG Finance Secretary, led the original buyout and has remained chairman ever since.
BSP has become the biggest bank in PNG, with about a third of the market, earning a net profit in 2008 of K216 million, assets of K6.5 billion and 530,000 retail customers.
He stresses that BSP’s growth strategy is “a regional strategy.” The bank may be starting to reach growth limits at home in PNG, but is eager to become “a more active participant” in the Exxon-Mobil led K30 billion new liquefied natural gas project likely to begin construction there next year—another reason it is seeking to increase its capitalisation.
In 2004, BSP bought Westpac’s operation in Niue, tiny but remittance-rich, where it is the only commercial bank. In 2006, it bought the small Habib Bank in Fiji. In 2007, it bought the National Bank of Solomon Islands.
CEO Clyne said the offer for the Commonwealth business in Fiji is subject to due diligence. But if it does go ahead—as appears most likely—“BSP will have a Pacific network to match our competitors ANZ and Westpac”.
The bank has recently closed an issue in which it aimed to raise K190 million of 10-year bonds, but it has not yet revealed whether it reached its target.