BSP looking to lend to growing middle class says CEO Robin Fleming


Papua New Guinea’s largest bank, Bank South Pacific (BSP), has adjusted well to the slowing economy, Chief Executive Robin Fleming tells Business Advantage PNG. He says the bank is looking to lend to the growing middle class in Papua New Guinea, especially for housing.

Business Advantage PNG: Many larger companies in PNG are reporting that revenues are sharply down. BSP seems to have largely escaped the hurt, despite taking quite a hit on the exchange rate. What have you had to do to keep the company’s performance going over the last year or so?

Bank South Pacific's Robin Fleming. Source: EMTV

Bank South Pacific’s Robin Fleming. Source: EMTV

Robin Fleming: We took the view a couple of years ago that we would need to address our cost structure, first and foremost. As we came close to the production phase of PNG LNG—and the end of the construction phase—we were conscious that we needed to be judicious with costs. We looked at the revenue opportunities in the various customer segments that we deal with, or could deal with, and came to a strategic view that our market share in lending of about 45 per cent wasn’t really a natural market share for BSP Group. We also took the view that there were opportunities in certain parts of those segments where we had a natural advantage and would be able to increase our lending. We grew our loans quite significantly in 2015.

Business Advantage PNG: A large number of houses are being built in Port Moresby. BSP has been extending mortgage finance in line with the rise of the middle class in PNG. What sort of growth have you experienced in that area?

Robin Fleming: Housing loans have probably grown by about 40 to 50 per cent; maybe a little bit more. We’ve done over K70 million worth of loans in first home ownership for housing. It means that our retail banking has grown, developed and increased its internal metrics. But it is certainly not a driver of short-term profits. It is more a longer term positioning for an emerging middle class over the next 10-to-15 years.

Business Advantage PNG: Outside of the major metropolitan areas, is there much progress in housing?

Robin Fleming: At the moment, it’s still Port Moresby. There’s a couple of businesses which have been doing some preparatory work for the housing developments in Lae and we hope that in 2017 we will see one or two of those start to come to fruition. There is demand all around the country.

‘We see 12 to 18 months of more difficult times.’

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Business Advantage PNG: One of the reasons always given for why it is difficult to lend in PNG is the lack of collateral to borrow against.  Has there been any change that would make you more comfortable about lending?

Robin Fleming: No, there’s been no change in our underwriting standards for the housing products; the product underwriting remains exactly the same. We’re still lending against state leases. More state leases have become available over the last three-to-four years. The gestation period’s been somewhat longer for a few of those housing developments, particularly in Port Moresby around the airport. But there’s no change in the underwriting standard.

Business Advantage PNG:  Regarding the foreign exchange situation, you mentioned that the Ok Tedi mine coming back on line is alleviating some of the stress. Do you have a view about how the economy is going to be over the next 12 months? Do you think it’s going to get better, or are you seeing it being more of a fluctuating situation?

Robin Fleming: I think it will be up and down, deviate around the mean. We see 12 to 18 months of more difficult times.

Business Advantage PNG: Will BSP be launching any new lines, making acquisitions or divestments?  What is on the horizon?

Robin Fleming: Certainly not divestments in the next 12 to 18 months. There will be some organic growth hopefully in the next year, with asset finance particularly.

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