Bank South Pacific

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Bank South Pacific
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A D D R E S S B Y N O E L S M I T H

• The Privatisation of PNGBC
• The Process, the Progress
• the Reality.

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To the Papua New Guinea Institute of
Accountants CPA Australia PNG Branch Annual
Conference
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The bid criteria referred to here is inter alia-

• Bidding party legal entity, ownership
• Financial capacity
• Operational capacity of the Bidder
  experience and expertise
• Willingness to accept Government CSO policy
• Future development plans
• Commitment to the Governments future sales
  process.

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Privatisation of PNGBC
It is important that the public understands that
the privatisation of PNGBC wasnt just a whim of
the Government. It was necessary for the future
stability of the banking industry in PNG, as you
will see.
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Capital Adequacy Ratio(CAR) PNGBC
PNGBCs capital adequacy ratio deteriorated
significantly between 1997 and 2000. Graph 1
PNGBC BSP Capital Adequacy Ratio 1996 to
2002 Forecast illustrates the deterioration in
the PNGBCs CAR over that period. In
1996, PNGBCs CAR was 14.65. By 2000, it was
0.
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PNGBC BSPCapital Adequacy Ratio
1996 to 2002 Forecast
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Major Commercial Banks - Loan Book Growth
1996 to 2001
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PNGBC Net Bad DebtsLoan (Provisions less
Recoveries)
1996 to 2001
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Operational Costs(excluding Provisioning)
1996 to 2001
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PNGBC - Pro Forma Balance Sheets - 1996 to 2001
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PNGBC - Pro Forma Balance Sheets - 1996 to 2001
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BSP - Pro Forma Balance Sheets - 1996 to 2001
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BSP - Pro Forma Balance Sheets - 1996 to 2001
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A balance between two issues

• Raising sufficient capital to enable us to effect
  a competitive bid
• and Estimating the value of the business and the
  potential returns

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Investors
INVESTOR
K000
Public Officers Superannuation Fund
Board Petroleum Resources Kutubu Limited National
Provident Fund Motor Vehicles Insurance
Limited PNG Teachers Savings Loans Defence
Force Retirement Benefit Board
30,000 30,000 14,950 10,075 6,500 3,250
94,775
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Purchase Price of PNGBC
The actual figures were- K000s Cash
82,462 Value attributable to Non Banking Assets
78,538 Purchase Price 161,000 Plus an issue of
10.7 million shares (25.3) to the Privatisation
Commission, which effectively valued PNGBC at
215.53 million Additional Loan of.. 8.8
million
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to the Privatisation Commission, to be repaid
over a period of up to 3 years from dividends
which would otherwise be payable to the
Commission.
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Amalgamation
ADVANTAGES
DISADVANTAGES
Management only needs to focus on one entity and
can bring about change consistently through the
business. Synergistic benefits can be achieved by
rationalising certain staff, branches,
operational costs and a common IT platform. The
capital of the two companies is shared.
Compliance with capital adequacy and other
regulatory requirements would be easier. Once the
combined entity was listed the current
shareholders of BSP would have a liquid market
for their investment.
Amalgamation will require additional senior
management initiatives in order to marry the two
diverse cultures and merge the banking
operations. Directors required to satisfy
themselves that they are solvent. The
Amalgamation option would be a non-conforming
bid.
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The synergies to which I refer, among others
are-
A low cost deposit base allowing BSP to use a
significant drop in the average cost of funds to
lower the rates on lending products and compete
more vigorously for market share.   Already we
have been able to pass on these benefits as
they came through. We have led the way with
recent interest rate reductions on lending and
you can expect a further interest
rate announcement shortly, which will demonstrate
that BSP will not just be the largest bank, we
will continue to act as the market leader.
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The synergies to which I refer, among others
are-
Rationalisation of branches is a further obvious
synergy.   This will only occur where there is
dual representation.   Accordingly, there will be
no reduction in services to the people and we
have given an undertaking to the Privatisation
Commission in that regard.
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The synergies to which I refer, among others
are-
Reduction in staff numbers from natural attrition
will provide a cost benefit. Again, we have
given an undertaking that staff will not be
retrenched for a twelve month period and there
will be no loss of benefits and entitlements.
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Integration Program
Our extensive integration program is being driven
by Tony Westaway General Manager Integration
Delivery Systems a very autonomous and
crucial role in the merger process.
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Project Office
The integration activity is co-ordinated through
a Project Office which directs the activities of
small, rapid, interactive, integration teams.
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A Project Steering Committee performs the
following role-

• Provides strategic direction
• Defines expectations and success indicators
• Schedules ad-hoc meetings to resolve strategic
  issues and conflicts
• Makes timely decisions and sets priorities
• Communicates expectations and critical
  decisions
• Signs off on budget and scope.

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BSP is being supported by

• Deloitte Touche Tohmatsu (Project Overview)
• Datec PNG Limited (Methodology Project
  Administration)
• Fiserv (Core Banking System) and
• Euronet Services (Electronic Banking).

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Conversion through to September 2003
Concurrent with each branch conversion is
the re-badging of the branch, the issue of
new uniforms to staff and various changes down
to the use of new BSP stationery.
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