A shareholder of Papua New Guinea’s Bank South Pacific (BSP) has expressed the fear that the bank has collected too much cash and it could become what it terms as ‘lazy capital’.
NASFUND General Manager Rod Mitchell made the observation while assuring his members that BSP was in a financially sound position.
He made the comments after NASFUND expressed concerns before the bank's AGM in Port Moresby in May that the bank’s share prices had been shaved from approximately 0.85 toea to 0.67 toea, thus affecting the returns in their investment.
NASFUND holds 7.13 percent shares in BSP.
Mitchell told NASFUND members that BSP capital adequacy was approximately 24 percent and under PNG law it should be 12 percent, and unless that capital is properly deployed, it won’t give them a sub-optimal return.
Mitchell said the bank has been collecting capital far in excess of its current needs.
BSP has established banks in Niue, Fiji and the Solomon Islands.
“The bank’s argument that they need additional capital because they want to participate in increased loan activity surrounding the LNG project cannot be faulted.
"However, BSP has probably over estimated the amount of capital required, considering that the evidence to date is that the majority of the financing for the project is happening outside the country,” Mitchell said.
“The task of the bank over the next year is to deploy the capital, not collect any more.”
The bank has announced that:
• It made a profit of K257.7 million in the 2008-2009 financial year compared to the previous year, which recorded a profit of K228.3 million:
• Deposits totalled K7.5 billion, capital & reserves totalled K934.1 million;
• BSP also sold shares to the International Finance Corporation and then sold $16.085 million in convertible notes to individuals in Fiji on May 7.
At the AGM, NASFUND raised the need for a transformational change at BSP and called for the appointment of an international consultant to review the board and recommend changes including a new composition if required.
“It would appear that the current board does not have the broad skill base required to meet the complexities of running a now international banking concern,” Mitchell said.
Whilst they remained sceptical on a number of issues, Mitchell made the following observations about BSP:
• The bank remains solid and with the current transformational plan it will improve the performance of the operation and flow through to increased profitability;
• The bank is currently undervalued in the market and represents excellent value for new investors;
• As a long-term investor, NASFUND urges members not to be distracted by short-term share price weakness or volatility. Investing is always about the long-term.
BSP, however revealed the following at its AGM:
• BSP Colonial National Bank in Fiji held more than K790 million and BSP Colonial Fiji Life (BSPCFL) over K516 million in total assets at 30 June 2009;
• BSP is in the process of selling the Colonial Life and other companies owned by Colonial while it will keep its banking operations;
• BSP’s Deputy General Manager Johnson Kalo said the 10:1 share split was carried out in July 2008, to bring the price per share to a level where ordinary citizens could trade in it.