Bank South Pacific on prowl after Westpac stake buy

BANK South Pacific, which bought Westpac’s banking operations in Pacific countries for $125m, is hungry for more acquisitions.

Robin Fleming, chief executive of Bank South Pacific.

THE Port Moresby-based Bank South Pacific, which bought Westpac’s banking operations in five Pacific countries this week for $125 million, is hungry for more acquisitions.

It is unlikely to look anytime soon at Australia, which its chief executive, Robin Fleming, views as “very well banked by extremely profitable, sound and well managed banks”. But its board views Southeast Asia — with which PNG, a major gas, minerals and tree crop exporting economy, has increasing synergies — as a definite prospect for growth.

The bank was pursuing revenue diversification, he said, “trying to ensure we’ve got business opportunities not totally dependent on PNG’s commodity-based economy”. Some of the bank’s new acquisitions, for instance, were oriented towards tourism.

“We’re used to dealing with risk,” he said.

Mr Fleming, 56, originally came from Brisbane, “but now I see myself as a Papua New Guinean”. He arrived in PNG in 1980 on secondment from the Commonwealth Bank, and has worked with the same institution since then, as it has evolved.

In 1993, the operations of BSP — the name with which National Australia Bank traded in PNG — were taken over by local firm ­Credit Corporation. Then in 2002 it acquired the PNG government’s leading 49 per cent stake in PNG Banking Corporation, which the government had been given by Commonwealth Bank just before independence, in 1974.

Until Thursday, BSP had about 4000 staff, with 42 full branches and 44 rural sub-­branches in PNG, 20 branches and a life insurance business in Fiji, and seven branches in the Solomon Islands. That has been extended by the purchase of Westpac’s operations in Cook Islands, Samoa, Solomon Islands, Tonga and Vanuatu.

BSP ranks with Oil Search and Ok Tedi Mining as one of the three biggest corporations in PNG and is one of 19 businesses listed on the Port Moresby stock exchange.

Mr Fleming said the region and its businesses benefited from annual Pacific-wide meetings between financial institutions, the central banks and regulators who participate in the supervisory reviews, “which get everyone on the same page”.

BSP has different expectations of the return on equity and investment from the smaller Pacific countries, compared with PNG where the returns now approach 30 per cent. The operations in Fiji and Solomon Islands return about 15 per cent.

Mr Fleming is confident that will increase this year, especially in Fiji, given last September’s smooth election. “Most businesses have a greater degree of confidence that there will be no major deviation from fiscal or other economic approaches by the government,” he said.

“The outlook in Fiji is now more positive and buoyant, from the bank’s perspective.”

He said “no one wishes to downplay the importance of the international monetary transfer system”, with its “increasingly burdensome” compliance requirements in order to guard against money-laundering, corruption and terrorism, but those most dependent on such transfers and remittances — including those in the small island nations whose Westpac operations BSP has just acquired — tend to suffer the most from the costs involved.

He said: “We will ensure that the underlying rationale for that compliance is not compromised, while continuing to provide a service on which individuals and countries rely.”

How can BSP do well in business environments from which a bank with the size and experience of Westpac has now retreated, ­albeit retaining its substantial ­operations in PNG and Fiji?

“A focus of the bank has been on financial inclusion,” Mr Fleming said, “bringing into the banking system as many people as possible, and making it easy for them to save and to conduct transactions.

“We have skills and strengths developed in our retail business in PNG in this direction.”

About 80 per cent of the bank’s income from PNG comes from the corporate sector, “but we ­devote a lot of time to retail development, because that’s a big part of the future”.

The bank would also follow a strategic approach to developing local leadership in the countries where it was operating, including through senior postings.

Over time, Mr Fleming said, synergies of systems and pro­cesses would help reduce overheads in island countries where operational costs can be high.

And trade flows across the ­region were increasing, he said, further reinforcing the need for Pacific-wide coverage.

He said that BSP was already leveraging off the rapid expansion of telecom networks in the ­islands by Irish company Digicel to bring mobile technology to a broader population.

Future banking depended on reliable access to such technology, he said.

BSP has opened branches in rural areas where there is no land line, instead offering tablets to open and manage accounts.

The withdrawal of Westpac from much of the Pacific leaves BSP to compete chiefly there with ANZ. “We both have our respective strengths and capabilities,” Mr Fleming said. “And we are as good a bank as ANZ in the areas and countries in which we operate.”

BSP has 51 per cent of PNG’s lending market and 65 per cent of its deposits.

“While we have a strong profit motive, we also look to bring a sense of community, of development, that persists beyond short-term changes in the political and other landscapes.”