Banks record healthy profits

 PAPUA New Guinea’s top banks and financial services firms recorded healthy profits in 2012 citing overall strength of the local economy.

The government has also pledged a broad and ambitious infrastructure development programme in the hope of further boosting growth.

However, concerns about the future distribution of an expected resource-driven boom continue to dampen long-term expectations.

On March 18, Bank South Pacific posted an operating profit before tax of K545.3 million for 2012, up 14.8% from 2011’s figure of K475 million. 

General finance company Credit Corporation saw profits rise some 250% year-on-year to reach K106.11 million last year. 

The company also reported that its core business cash operating profit, which includes financing, property and dividend revenues, increased from K74.16 million in 2011 to K80.79 million in 2012.

Also, first listed investment company, Kina Asset Management, announced that it had recorded a net profit of K4.73 million last year following a significant improvement over the net loss of K9.43 million in 2011.

In a further boost to the economy’s confidence, Prime Minister Peter O’Neill said the government would continue to invest in 

improving the country’s infrastructure. 

Speaking at the ground breaking ceremony for a K380 million real estate project, O’Neill noted that his administration would spend more than K3 billion this year on infrastructure projects, including the Highlands Highway and the port development in Lae, the second-largest city in the country.

The gross domestic product growth is projected to fall from 9.2% in 2012 to 4% this year.

And it is expected to jump to 20% in 2015 when the PNG LNG project reaches peak production.

However, the impact these funds will have on the economy will depend largely on the performance of a sovereign wealth fund that has been established to ensure the LNG revenue is used to spur development and alleviate poverty.

“Having a high degree of transparency is very important for the SWF,” Jonas Moberg, the head of the Extractive Industries Transparency Initiative, told reporters after meeting with O’Neill in March. 

He said O’Neill had talked about “the importance of getting it right” with the SWF.

The Asian Development Bank said earlier this year that the design of the fund was not sound, and that less should be spent “until the government undertakes necessary public financial management reforms”. 

The ABD has also been critical of PNG’s debt-laden state-owned enterprises, which include electricity, insurance, airline, telecoms and energy providers. 

Last September, a report from the bank said the country’s SOEs absorbed an estimated K700 million in direct government transfers during the financial years 2002-09, against which they generated a net profit of K500 million – of which only K23 million was paid to the treasury in the form of a dividend.

“By absorbing large amounts of scarce capital on which the SOEs provide very low returns, crowding out the private sector, and diverting public funds that could otherwise be invested in such high-yielding social sectors such as health and education, SOEs act as a drag on economic growth,” the bank wrote.