If Kina Bank’s acquisition of Westpac’s Pacific operation proceeds, it will be rebranded East West Commercial Bank, a stand-alone ‘Pan-Pacific’ bank to compete against its new parent. That’s according to a presentation made by Kina last week as it tries to convince Papua New Guinea’s Independent Consumer and Competition Commission of the deal’s merits.
Kina Haus in downtown Port Moresby. Credit: Kina Bank
Last month, PNG’s Independent Consumer and Competition Commission (ICCC) indicated it was not in favour of allowing Kina Bank’s acquisition of Westpac PNG to go ahead, citing anti-competitiveness concerns.
With ASX- and PNGX-listed Kina Bank’s acquisition of Westpac Fiji already receiving regulatory approval, the ICCC’s interim decision was a major setback for a deal covering both PNG and Fiji agreed between the two banks last December.
‘We will retain the existing Westpac corporate structure, banking licence, operations and technology’
Last week, Kina and Westpac had the chance to convince the ICCC to change its mind during a predetermination conference, ahead of an expected final determination by the ICCC next month. (The other entity that must approve the acquisition, PNG’s Central Bank, has said it is waiting on the ICCC determination before making up its own mind on the deal.)
Enhancing competition
Kina Bank’s Greg Pawson.
Kina’s Chairman Isikeli Taureka and Managing Director and Chief Executive Officer Greg Pawson presented a ‘vigorous’ strategy aimed at demonstrating the acquisition would actually enhance competition in PNG’s banking sector.
Under this strategy, Westpac’s existing footprint in PNG and Fiji would be rebranded as a new ‘Pan-Pacific’ entity, East West Commercial Bank, with its existing branch network in PNG expanded by 50 per cent in the first three years after acquisition.
‘Expanding the distribution footprint will ensure more competition in locations across PNG which are currently only served by one bank or not at all,’ argued Pawson. ‘It’s a huge commitment to reinvigorate financial inclusion.’
‘We will retain the existing Westpac corporate structure, banking licence, operations and technology,’ Pawson told the ICCC. ‘This exciting new bank brand will also be used for Westpac Fiji and positioned as PNG’s international bank brand.’
The strategy would see a full-service East West Commercial Bank compete directly with its new parent.
Jobs
Existing Kina Bank and Westpac PNG staff would be retained, with an additional 50 jobs created in the first 12 months. All senior Westpac PNG positions, including that of Country Head, would be assigned to Papua New Guineans.
‘Sitting in Westpac’s portfolio, the PNG business has not been and will not be prioritised for investment or growth’
In another move aimed at allaying the ICCC’s competition concerns, Pawson said Kina would give smaller financial institutions access to Kina’s infrastructure.
Pawson said the bank would give smaller banks, savings and loan societies, and non-bank financial institutions ‘fee free access to our ATM and POS networks,’ extend Kina’s USSD (phone banking) services to them, and ‘allow them to operate from our branch network where they are unrepresented.’
Pawson also committed Kina to making an additional K25 million investment in ‘technology and digital innovation’.
In the medium term, Pawson also tantalisingly held up the prospect of securing banking licences in Australia and Singapore ‘to improve PNG’s access and reach across the region’.
Westpac looks for exit
Final submissions to the ICCC are due this Friday 20 August. However, whether the acquisition is allowed or not, PNG may still find itself with just two major retail banks, as Westpac has indicated it is not interested in running a bank in PNG long-term.
‘Sitting in Westpac’s portfolio, the PNG business has not been and will not be prioritised for investment or growth,’ Westpac’s CEO Peter King told the ICCC last week. ‘As a result, Westpac PNG could not be regarded as a vigorous or effective competitor now or in the future, particularly in a market with such a big number-one player [Bank of South Pacific] which has economies of scale.”
‘Absent the option to divest to Kina, our only remaining option would be to continue to progressively scale down the business and seek an exit whenever possible.’
Kina Bank’s Chairman Isikeli Taureka sought to persuade the Commission that the move to a two-bank market would not result in collusion.
‘While the concepts of a duopoly and tacit collusion will be addressed in detail in our final economic and legal submissions, the significant disparity in market positions between Bank South Pacific and Kina indicate that such a result is impossible,’ he said.
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ICCC’s decision not to approve the acquisition in it’s current form is justified.
Westpac could totally exit or look for another buyer. Kina Bank could be encouraged to establish a separate independent entity with Superfunds and other financial institutions having a separate Board of Directors operating at arms-length from Kina Bank. This will ensure Kina Bank does not have majority shareholding to control the new entity.
With government’s emphasis on SMEs and the increase of micro finance companies, the trend into the future will be to have less bigger banks (economic reasons) and many smaller financial institutions so that if bigger banks collapse( due to world economy) the smaller finance companies can still provide services to people. ICCC and Bank of PNG have a moral duty to protect the long term interest of people of PNG based on current events happening at the global level.
Thomas Abe