by BRIAN GOMEZ
BSP shareholders count blessings

AT A low-key ceremony on Monday, BSP Fiji will become the first ever Papua New Guinea bank to open for business in that country.
It may not be an auspicious start given the recent coup by Fiji’s military chief Commodore Frank Bainimarama and Fiji’s continuing political uncertainty.
But BSP has been committed to taking over the single branch of the Pakistani-owned Habib Bank and will go ahead with the deal in the expectation the political uncertainty will eventually come to an end.
In the meantime, a keen sense of Melanesian brotherhood is likely to see the bank through any temporary difficulties, although none are anticipated at this time.
BSP chairman Noreo Beangke and BSP’s managing director since its merger with the government-owned PNGBC Garth McIlwain, will proudly officiate at Monday’s opening, which will be witnessed by members of Fiji’s business community.
BSP also has banking operations in Niue.
By the first quarter of next year, it will take control of the National Bank of Solomon Islands.
These are small milestones in the expansion of PNG’s only locally-owned bank, especially since Mr Beangke explains that some individual BSP branches in PNG are bigger than banking operations in many Pacific island nations.
But each of these locations have a capacity to contribute to BSP’s bottom line and to help increase the breadth and depth of its operations, especially since scope for expansion on the domestic front is limited.
The limitations are due both to BSP’s dominance of PNG banking with a market share that is approaching 55% as well as competition provided by ANZ Bank, Westpac and the two-branch operations of Maybank.
Mr McIlwain explained recently that BSP’s expansion into neighbouring Pacific Island nations “will diversify the revenue generation flows and the geographical risk profile of BSP”.
The Niue bank that it acquired from Westpac in 2004 has made BSP the sole provider of banking services in independent Niue, which uses the NZ dollar as its national currency.
This gives BSP increased access to NZ dollars for foreign exchange transactions.
Despite previous doubts about the timing of the privatisation of the then sickly PNGBC, its merger with BSP and consolidation of its role within PNG are part of a tremendous home-grown success story.
It has even been a big winner for the National Government.
Dividends and corporate taxes paid to the National Government in 2004 and 2005 have totalled K85.6 million, surpassing the total amount paid by PNGBC over the 25 years from 1974 to 2000.
The Government’s current 25% stake in BSP is worth a whole lot more than its 100% stake in the former PNGBC.
Despite having the biggest market share at the time of privatisation – it was using customer deposits to meet overhead costs – PNGBC only attracted takeover bids of K90 million to K100 million from three foreign bidders in 2002.
BSP eventually paid K224.6 million and the Government retained a 25% stake under the deal.
When it eventually listed on the Port Moresby Stock Exchange on Aug 23, 2003, BSP had a market capitalisation of K280 million. Today this figure stands at around K1.6 billion.
Looked at another way, if ANZ, Westpac or some other foreign bank wanted to purchase BSP today, they would have to look at a figure close to K2 billion, or more than 20 times the price they were willing to pay only four years ago.
The Government equity interest today is worth around K500 million or five times the going price of its fully-owned PNGBC.
Much of this increased value has also been flowing through to the superannuation savings of members of POSF, Nasfund and landowners who own Petroleum Resources Kutubu. These three groups today own 32% of BSP in their own right.
The BSP story is a critical part of the turnaround being enjoyed by PNG’s financial services sector and it owes some of its success to political stability and an improved climate for business investments.
The benefits are flowing out to the wider community in many other ways even though economic development is a long and slow process as expressed by Prime Minister Sir Michael Somare’s sentiments in his recent budget speech.
“While we have improved our economic indices,” Sir Michael told Parliament, “the gap
between our gross domestic product and population growth is still too thin.
“Therefore, we must still concentrate on the growth agenda.”
Activity in the construction sector is usually a good guide to the health of any particular economy and George Tipping, a past president of the PNG Institute of Builders and a regular contributor to the PNG Yearbook, had commented back in early 2003 that without the influx of overseas aid and soft loans, the building industry would have been reduced to the status of “a cottage industry”.
The following year his article was cautiously titled, “Better Times Ahead”.
In PNG Yearbook 2005, Mr Tipping correctly forecast that a sustained build-up in construction was gathering pace.
One of the points he mentioned was how lower interest rates were affecting the “affordability factor” and creating the basis for “a possibility of a domestic housing building boom”.
The launch of a K69 million housing complex at 8-Mile this week by Sir Michael is proof the construction boom is gathering pace.
Under this scheme 385 houses will be built on lots owned by POSF, Nasfund and others, the biggest such project in 15 years.
Other similar schemes are being planned and the Government’s recent tax incentives for the tourism sector are likely to also lead to development of some other hotel-residential schemes in Port Moresby and elsewhere.
On that happy note, Bottom Line would like to wish Mr Beangke and Mr McIlwain – they have made housing affordable to many Papua New Guineans by pioneering BSP’s 25-year loan schemes – a happy flight to Suva and an auspicious opening this Monday for BSP Suva.
Seasons greetings and best wishes also to all regular and occasional readers of this column.

Note: Bottom Line will return to The National in February.