BSP expects economy to pick up

FOREIGN exchange orders with Bank South Pacific have been progressively reduced by about 50 per cent through the first half of the year due to interventions from Bank of Papua New Guinea.
This, plus the positive prospects of the next phase of LNG project, signal a pick-up of the economy leading to next year, says BSP chief executive Robin Fleming at BSP’s half-year investor presentation this week.
“Foreign exchange is really one of those indicators of how the economy is performing and we have seen a reduction in the overall number of orders,” Fleming said.
“That number of orders possibly reduced through a combination of factors and part of it has been because Bank of Papua New Guinea has been a regular participant in the foreign exchange market with interventions coming to all banks.
“We have also seen a few of the multinational corporations mitigating their foreign exchange risks by investing in treasury bills and other instruments so they can get a reasonable return, which can outplay the potential downside risk associated with the kina possibly depreciating.
“We have also seen some investments from multinational corporations as they look for import substitutions or perhaps positioning themselves for the next LNG project.
“From BPS’ perspective, total orders have reduced by about 50 per cent over the course of the past six months. To some degree, that does indicate that there is some change in the underlying fundamentals of the economy.
“I know that GDP growth has still been relatively low but positivity is coming from the statements which you see at either the Business Advantage Forum in Brisbane or in other public forums.”
Fleming mentioned how it was encouraging to see Oil Search, which released its half-year results last week, staying positive with its plans to deliver the next LNG project with its partners.
This will have them working with ExxonMobil and Total to come up with a front-end engineering design decision (FEED) by November for the Asia-Pacific Economic Cooperation Leaders’ Summit.
“You have a front-end engineering design decision, potentially a financial investment decision 12 months later and possibly about US$500 million in pre-FEED investment,” Fleming said.
“A little of that will be spent in Papua New Guinea. “There have been comments made publically that without the earthquake there would have been more tax and more royalties from the existing PNG LNG project and I get a sense that towards the fourth quarter of this year that is likely to eventuate as well.
“So, potentially, (we’ll get) some additional taxes and royalties from the existing PNG LNG and foreign direct investment associated with FEED at the end of next year. “Wafi-Golpu has also been relatively positive with the sentiments emanating from the joint ventures. We think that the medium-to-longer-term prospect looks relatively positive.”
Fleming expects greater competition in lending from the banking sector to match increased activities promised by the new LNG project.
“From the banking sector’s perspective in Papua New Guinea, it gives everyone a greater capability to give some more regard to the underlying risks associated with the counterparties on the lending side,” he said.
“There should be greater potential and more competition in lending as people are looking to finance activities associated with the next LNG project and also from the foreign exchange. We think that beyond the second half of 2019, general economic activity should start to see more momentum.”
Fleming said the BSP Group has had a positive half-year performance, both in Papua New Guinea and other countries in the region where it operates.
The BSP Group recorded a consolidated operating profit after tax of K418.3 million for the 2018 half year, a 12.8 per cent increase on the consolidated 2017 operating profit after tax of K370.9 million for the same period.
The group’s total assets increased by about K577 million to K22.947 billion, mainly due to an increase in the loan book for the period across all countries.