Corporate banking stable to grow
Business reporter DALE LUMA had a Q and A session with BSP chief executive officer ROBIN FLEMING about the importance of corporate/business banking specifically in the mining sector in PNG.
MANY resource projects by nature are undertaken in areas that often have not benefited from significant development and, hence, financial activity in those areas has been somewhat rudimentary, says Bank South Pacific (BSP) chief executive officer Robin Fleming.
Fleming answers questions about the importance of corporate/business banking specifically in the mining resources sector in Papua New Guinea with respect to major projects such as the PNG LNG, Papua LNG and others taking shape in the country.
1. What is the importance of corporate/business banking for the resources sector?
All resource developers require local banking partners to be active in the project area to ensure that the operations of a project are not hampered by the inability of workers and suppliers to access local banking services.
Access to and availability of banking, especially business banking, is very important as banking is the means and mechanism by which participation in resource projects by local businesses is facilitated.
2. What types of services do BSP provide to its business customers in the resources sector?
We provide a range of extensive services through the largest branch network in PNG.
Our financial solutions include transactional banking, working capital facilities, overdraft, leasing, term loans for capital equipment and construction, performance/bank guarantees, Business VISA card, online business banking, remote employee/contractor account opening, electronic payments including landowner royalty payments and payroll.
We also provide access to foreign exchange (FX) for import of capital equipment, spare parts, services, etc.
3. Can you give an update on the availability of foreign exchange currency in the country which is one of the main services that resource companies and investors depend on?
Outstanding foreign exchange orders have stabilised with order volumes 75 per cent lower than 12 months ago, although there has been an increase in the past two months.
The Bank of Papua New Guinea (BPNG) has continued to provide regular intervention and inflows from resources, agriculture and fisheries sectors should see some stability in the second half of 2019.
The new resource projects are expected to deliver the necessary support for FX market normalisation from 2020 to 2021.
4. How many business customers from the mining industry does BSP deal with?
BSP deals with in excess of 1,000 business customers, especially in the small medium enterprises (SMEs) and small corporate segments in the resources sector and many more customers that these business customers work with such as subcontractors, landowners, employees, suppliers and many more.
5. What are some of the most specific needs or services that the resource industries have asked for over the year that BSP has been able to provide so far?
We have been able to provide foreign exchange to imports goods and services, leasing of plant and equipment for example trucks, generator sets, yellow goods and many more.
Also, access to our branch network to handle customers’ cash handling requirements to reduce business risks and facilitate electronic payroll and royalty payments.
We also provide overdraft facilities to provide working capital support to manage cash over the customer trade cycle.
6. What are the rates charged to resource companies that come to seek financial assistance in terms of loans from BSP?
Interest rates vary based on the business risk assessment. However, BSP has the lowest business indicator lending rate (ILR) in PNG and has further reduced our ILR by 0.10 per cent to 11.1 per cent.
7. With the PNG LNG (liquefied natural gas) already underway and the Papua LNG now set to kick off, has the bank seen or anticipates an increase from corporate customers in the coming years?
With the Government’s commitment to the Papua LNG and national content and the pending commitment to P’nyang, BSP anticipates an uplift for business customers from the second half of 2020.
When the upcoming resource projects commence, we anticipate that the transport, hotel and accommodation and retail sectors will benefit materially.
8. What are some of the expectations that the bank has for future projects that are yet to kick off such as the Wafi-Golpu, Frieda mine and others?
BSP is expecting an increase in activity for our Lae business customers once an agreement is reached on Wafi-Golpu.
We understand timing is dependent on the finalisation of the Mining Licence and Mining Act.
We don’t expect any medium-term progress on Frieda River based on the most recent market announcements by PanAust.
9. The Government is planning to review both the mining and petroleum legislations, what do you have to say about this?
BSP fully supports the review of the Mining Act 1992 and the Oil and Gas Act 1992.
The focus on national content will deliver stronger economic growth, create jobs, uplift FX availability and enable BSP as the only locally-owned bank to provide finance for EPC (engineering procurement construction) contractors and subcontractors, provide access to credit for landowners and digital payment of royalties.
10. What are some of the things BSP, and the banking sector in general, would like to see from its customers in resources industries going forward?
We want stronger support by MNC’s (multinational companies) of local businesses as project partners, direct FX inflows to local banks that support our communities and whose profits are retained within PNG via taxes, dividends, supplier payments, etc.
For our business customers, we continue to cooperate on timely financial reporting, business planning and communication.
11. What is the outlook like for BSP’s corporate banking?
With our focus on customer service, our people, our digital capabilities combined with fully understanding customers’ needs, the outlook for Bank of Papua New Guinea, BSP and corporate banking is for stable growth over the next two years with uplift upon FID (final investment decision) for Papua LNG.