Fix licencing system before buying Westpac

PUBLIC policy is for protection of public interest and it should not be confused with law and business considerations.
The announcement of the interim decision by the Independent Consumer and Competition Commission (ICCC) not to allow Kina Bank to acquire shares from Westpac PNG is based on public policy.
It makes sense on three key policy issues set out below.
First, concentration risk has been significantly elevated and is now at its highest.
The risk of an event causing a major financial system meltdown, or an economic collapse causing a financial system collapse is very high.
The reduction in the number of major financial institutions in Papua New Guinea over time has aggravated this risk, due to the sale of institutions in the financial system.
Second, competition has been significantly reduced due to consolidation in the financial system based on commercial justifications.
Institutions of the financial system have been sold over time, without a long-term strategic view of its implication on competition and concentration risk.
The lack of new entrants to the system has also worsened competition, making the financial system a failed market.
Third, the dominance of corporate commercial interest driven by shareholder returns in the form of dividends.
This is a major issue, which is factored into the prices of financial products and services offered by the financial institutions in Papua New Guinea.
The reduction in lending with high bank fees and charges and interest on borrowing are a reflection of this significant shareholder interest.
This is a major market failure in PNG.
The plan presented to ICCC by Kina Bank is just another corporate plan, as reported in the public domain.
Whether it will happen or not is a matter of time.
It is a very different concern.
Furthermore, Kina Bank’s plan of using law and business strategy to address the public policy issues is inappropriate and misleading.
The recommendation is for ICCC to reaffirm and maintain its interim decision on public interest and PNG to reform the current financial institution licensing system.
The licensing system applied by the regulator, Bank of Papua New Guinea, should be overhauled to encourage more firms to enter our financial system to increase competition, as well as reduce the concentration risk and dominant shareholder interest.
Westpac PNG can be sold to another independent overseas firm or domestic buyer after reforming the licensing system.

Concerned Economist