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.

Business Advantage Papua New Guinea - - Financial 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.

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