World Report

With regulatory requirements equal to the world’s best and a promising new stock exchange, PNG’s financial sector is ready for business

Port Moresby in PNG’s National Capital District, is the political, financial and commercial centre of the country

sound, market-based financial system operates in Papua New Guinea under the supervision of the Central Bank. The sector, which includes commercial banks, licensed financial institutions, savings and loan societies, superannuation funds and life insurance companies, is regulated under legislation introduced in 2000 in line with international standards. There is also a stock exchange at Port Moresby (PoMSoX) and a new stock index, the Kina Stock Index (KSI).

Leading banks providing retail banking services and finance include the Australian-owned Westpac and ANZ, but dominating the sector is the locally-owned Bank South Pacific (BSP), which currently holds approximately 60 percent of the nation’s banking assets.

The major change of recent years in the banking industry has been BSP’s takeover in April 2002 of the formerly state-owned Papua New Guinea Banking Corporation (PNGBC), which was sold off by the present government’s predecessor as part of its privatisation programme.

The merger has transformed BSP into the largest commercial bank in the country, with more than 1,900 staff and 43 branches spread across the country. Since then the bank has been consolidating its position and introducing a new international banking system throughout its network. It has posted steady growth with net profits of almost K58 million (£9.7million) and last year it was listed on PoMSoX.

Garth McIlwain
Managing Director of Bank of South Pacific

‘We understand the potential and the local environment’‘

Managing Director Garth McIlwain says that one of Bank South Pacific’s strengths is that it is locally owned. “Our decisions are made onshore, where our board is located. We don’t have to send submissions for credit to Australia or other countries. We pride ourselves on a fast turnaround of decision making.”

The bank boasts a wealth of local experience and knowledge of use to potential investors. Through its extensive branch network it has an awareness of what is happening around the country that extends well beyond the main centres like Port Moresby and Lae.

Mr McIlwain says: “We understand the frustrations, but we also understand the potential and the local environment, and can point investors in the right direction as far as licensing, statutory and bureaucratic requirements are concerned.”

BSP prides itself on meeting international standards of disclosure. Mr McIlwain points out that, in terms of regulating the sector, the Central Bank has adopted the world’s best practice through its affiliation with the IMF, the World Bank and the Basel Committee in Switzerland. “Our regulatory requirements are now equal to the world’s best practice as far as the banking system is concerned.”

A wide network of local branches helps Bank South Pacific dominate the sector

He regards PNG’s banking industry as well served and competitive. “Personally, I would not like to see any shrinkage in the market because competition creates better practices in the industry and better opportunities for the people and companies who wish to start or increase their business here.”

There are long-term ambitions to expand the bank’s operations beyond PNG. Mr McIlwain says: “In the longer term, the directors feel there will be opportunities for the bank to go to neighbouring islands or to open a representative office in Brisbane, Australia, and perhaps in New Zealand and even Asia.”

Bank South Pacific is one of just a dozen companies which have listed so far on PoMSoX, which commenced trading in 1999. Listing rules on the exchange are the same as those for the Australian Stock Exchange (ASX).

Syd Yates, CEO and founder of Kina Securities, one of the two stockbroking firms currently licensed to operate, says that after a slow start the exchange is doing well. “We have got companies here that have shown very good growth, such as New Britain Palm Oil, Ramu Sugar and InterOil, and we are pushing to get the government securities listed, which I think will happen soon.”