Banks and finance companies broaden services as competition increases

Competition among the leading commercial, micro and retail banks in Papua New Guinea is increasing, resulting in acquisitions and an expansion of services.

In the biggest news in PNG’S finance sector in the past 12 months, local bank BSP has agreed to buy Westpac’s banking operations in Samoa, Cook Islands, Solomon Islands, Vanuatu and Tonga, for A$125 million.

BSP already operates in PNG, Solomon Islands and Fiji, and has a history of growing through acquisition, having bought Habib Bank’s Fiji assets in 2006, the National Bank of Solomon Islands in 2007, and National Bank of Fiji and Colonial Fiji Life Insurance Limited in 2009.

‘This expansion positions BSP to make its mark as the preeminent bank in PNG and the South Pacific,’ says BSP Chief executive, Robin Fleming.

‘It is a regional strategy,’ says the Chairman of BSP, Kostas Constantinou. ‘We have and will continue to have a strong presence in the region for a very long time.’

‘Our decision to sell our operations in these nations reflects our desire to increase focus on our growth plans in the larger markets of PNG and Fiji, where we have a strong history,’ explains Rob Whitfield, Chief Executive of Westpac Institutional Bank, Westpac Pacific’s parent division.

Asset financing

BSP also launched BSP Finance, an asset finance business aimed at offering finance deals of between K20,000 and K3 million, increasing pressure on ANZ and Westpac and smaller finance companies such as Kina Finance and Credit Corporation (which BSP tried unsuccessfully to buy in late 2013).

‘We also see asset finance as a vehicle to being able to test the waters outside of our traditional geographic boundaries because it’s a lower capital, lower cost establishment, and that’s certainly in the area where we’re looking to see how we may well be able to use a BSP Finance model to extend beyond our normal markets,’ says Fleming.

‘It’s now about going back to our clients and saying that we can do this business for you as and we are keen to do it, says Jodi Herbert, PNG Country Manager for the new subsidiary.

Digital banking

Managing Director of ANZ’S PNG operations Mark Baker says in retail banking the emphasis is now on digital—‘everything from mobile phone banking to ATMS to how do we use SMSS to wireless EFTPOS machines’.

Baker says the uptake of mobile phone banking ‘is steady rather than spectacular’, largely because people are not yet familiar with phone banking.

BSP’S Fleming says while 15 years ago all banks are closing branches, BSP included, his bank is now opening sub-branches.

‘Our approach has been to continue the introduction of the BSP rural sub-branches,’ he says.

‘We’ve got 44 BSP rural sub-branches as we speak, and they are two- to three-person branches out in rural areas which do transactions over a tablet, therefore it’s very much predominantly individual retail-based.’

Financial literacy

All banks are heavily involved in financial literacy programmes. ANZ has responded to demand from small traders and families with its ‘Money Minded’ programme, delivered by staff, often in their own villages, while Westpac runs ‘Financial First Steps’ for school students and community groups.

BSP’S retail banking education programme reaches about 4,000 people per month, says Fleming, ‘and then we start doing the smart business training, whether it’s town hall meetings or other one-on-one with businesses as well.’

Kina pegging

In June, 2014, the Bank of PNG pegged the Kina to the US dollar, to stop a decline in its value. It also ordered banks trade within a 75-basis point range of the reference rate, US$0.4130. The Kina had slumped to a low of US $0.32 the previous month, down almost a third from $0.47 in 2013.

Reserve Bank Governor, Loi Bakani, said the trading range had spread by as much as 600 basis points before

intervention. In spite of reduced income from foreign exchange transactions, liquidity among the commercial banks increased in the six months to December, 2014. The central bank, the Bank of Papua New Guinea, reports that ‘liquid assets margin to deposits’ among the banks rose from 44.7% to 46.1%. In that time, bank deposits rose from K14.2 billion to K15.1 billion.

An untapped market

Insurance is also regarded as a huge untapped market.

‘Insurance penetration in PNG is still very low; it’s still under five per cent, and there is still a great opportunity to deliver insurance,’ says Tony Westaway.

Among the institutions venturing into the life insurance market this year are BSP, Kina Securities and the Women’s Micro Bank.

Fleming says BSP will be using its BSP Life subsidiary as a way of tapping into the insurance market over the next three to five years.

Wayne Dorgan of Pacific MMI, the country’s second largest insurer, says the industry is ‘flat’ at the moment, following the end of the construction phase of the LNG project. He notes however that the car insurance sector has potential, with about 500 cars coming into the country per week. While third-party insurance is compulsory, Dorgan says only 25% of car owners actually insure their vehicles against accidental damage or theft through comprehensive insurance policies.

The board of Pacific MMI is looking to expand the company, he says, probably through acquisition, either in PNG or elsewhere in the Pacific.