BSP Financial Group Limited Annual Report 2015

Plain-text annual report

Across all levels of the Bank we con(cid:415) nue to promote Our Vision and Core Values - Integrity, Professionalism, Leadership, Quality, People, Teamwork and Community. These form an integral part of what we do and everyone at BSP is commi(cid:425) ed to service and delivery aligned to these values. - Robin Fleming, Group CEO Our Core Values INTEGRITY We are honest, commi(cid:425) ed, trustworthy and reliable in our dealings with our customers and each other. PROFESSIONALISM We commit ourselves to con(cid:415) nual self - development to achieve standards of excellence in our performance. LEADERSHIP We inspire, we change, and we live our values, and lead by example. QUALITY We are commi(cid:425) ed to excellence whilst striving for con(cid:415) nuous improvement in products and services. PEOPLE We respect and value our people and our customers. TEAMWORK We work with, and for, each other; we progress together. COMMUNITY We respect, value and support the communi(cid:415) es in which we operate. 2 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 Team BSP , Cook Islands. BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 3 CHAIRMAN’S REPORT I am pleased to report to the market, another successful year for Bank of South Paciﬁ c (BSP) Group. The majority of our businesses have performed well during a challenging year. Strategically also, a major business acquisi(cid:415) on and transi(cid:415) on has been undertaken, and a core system upgrade was completed for the Fiji banking opera(cid:415) ons. BSP Group audited proﬁ t was PGK531.9 million, an increase of 4.8% from 2014. Total assets have grown 16% to PGK18.2 billion. Macroeconomic condi(cid:415) ons have been (cid:415) ght in the economies in which BSP operates, reﬂ ec(cid:415) ng the general weakness in the global economy that has prevailed over the period. Slowing growth in emerging markets in Asia, led by China, has been a major factor. This has resulted in a reduc(cid:415) on in demand for metals and other manufacturing materials. Oil prices have remained depressed due to con(cid:415) nuing oversupply. PNG’s export economy has therefore been directly exposed to low export revenues and low foreign direct investment, a(cid:332) er the conclusion of the major construc(cid:415) on phase of the PNG LNG project. In the non - PNG economies, the prolonged period of low global growth has had a general dampening eﬀ ect on local economic ac(cid:415) vity. Tourism ac(cid:415) vity has been moderate, as has agriculture. Remi(cid:425) ances are also nega(cid:415) vely impacted by the state of developed markets aﬀ ec(cid:415) ng the capacity of remi(cid:425) ers, as well as changing regulatory rules impac(cid:415) ng counterparty banks in source markets. The latest Standard and Poors assessment of BSP con(cid:415) nues to be at the maximum ra(cid:415) ng possible for a Papua New Guinea based en(cid:415) ty (B, nega(cid:415) ve outlook). BSP has con(cid:415) nued to pursue a strategy of diversiﬁ ca(cid:415) on, to balance the exis(cid:415) ng dependence on the strength of the PNG business. Consistent with the strategy, a(cid:332) er announcing its inten(cid:415) ons earlier in the year, BSP successfully completed the acquisi(cid:415) ons of Westpac’s businesses in the Cook Islands, Samoa, and Tonga in July 2015. This was followed by the comple(cid:415) on of the transac(cid:415) on for Westpac’s Solomon Islands opera(cid:415) ons at the end of October. BSP is set to acquire the Vanuatu branch of Westpac in mid- 2016. What is par(cid:415) cularly sa(cid:415) sfying about this exercise is that the opera(cid:415) onal and administra(cid:415) ve transi(cid:415) on of the businesses from Westpac to BSP was directed and undertaken by a project team of BSP staﬀ , calling only on external service providers where necessary. Following the addi(cid:415) on of these businesses to BSP’s balance sheet, 27.2% of BSP Group assets are based outside of PNG. As stated in earlier announcements, this transac(cid:415) on truly marks BSP as a South Paciﬁ c Bank, commi(cid:425) ed to partnering with people, businesses and governments in the region to deliver economic development. With recent business acquisi(cid:415) ons, and with the level of sustained growth that has been experienced by BSP over a period of (cid:415) me, systems, and processes need to adapt to ensure opera(cid:415) onal and strategic needs are sa(cid:415) sﬁ ed into the future, and this is also part of the strategic brief subject to regular considera(cid:415) on by BSP, as is the development of its people. This is why a pleasing aspect of BSP’s strategic progress has been the successful core banking system cutover in the Fiji banking opera(cid:415) ons in September - from an older version to the modern, current version – achieved in virtually one weekend, but prepared and planned, for over three years. In 2015, BSP was the major sponsor of the very successful Paciﬁ c Games hosted in Port Moresby PNG, in July 2015, a(cid:425) ended by 24 countries. The event brought out the best in the city of Port Moresby, and galvanised the family spirit of Papua New Guinea. The event also gave BSP the opportunity to bring to life its Core Values of Community, Professionalism, Teamwork, People, Leadership, Quality and Integrity, as a select number of staﬀ and the general public volunteered in various areas of opera(cid:415) ons and administra(cid:415) on, to help stage a spor(cid:415) ng event on an unprecedented scale for the Paciﬁ c Island region. BSP Group has managed to produce record results in 2015 despite a slowdown in economic ac(cid:415) vity generally across its major markets and results that outperform its major compe(cid:415) tors. Our key metrics of Return on Equity (ROE), Return on Assets (ROA) and cost to income also showed posi(cid:415) ve movements. This has also been achieved in the same year as a major business acquisi(cid:415) on has been undertaken with very li(cid:425) le external support. The coming year will no doubt be a diﬃ cult one, as most observers predict con(cid:415) nued contrac(cid:415) on in global condi(cid:415) ons. PNG’s economic fortunes will again be driven to a large extent by the tone of the global economy, and the resultant demand-price performance of commodi(cid:415) es. Even with these uncertain(cid:415) es, I remain conﬁ dent that the resilience and discipline of all of BSP’s stakeholders, compe(cid:415) (cid:415) ve opera(cid:415) ons, and the con(cid:415) nual review of strategy by BSP Group, will enable BSP to produce another successful year in 2016. BSP’s strategic inten(cid:415) ons for diversiﬁ ca(cid:415) on and expansion into other markets is con(cid:415) nually reviewed and considered by the Board and management. BSP also has a strategic mandate to diversify its business in other related lines of ﬁ nancial services. Sir Kostas Constan(cid:415) nou, OBE Chairman BSP commenced asset ﬁ nance opera(cid:415) ons in Fiji late in 2014, and in PNG at the start of 2015. Both businesses were start - ups from zero market share, but in 2015, have performed above expecta(cid:415) on, with plans to con(cid:415) nue the growth trajectory in 2016 and beyond into the next cycle of growth ac(cid:415) vity. 4 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 5 Livikonimo Koki, Branch Manager, Goroka, Papua New Guinea. Pictured with his nephew Enoch Tonny. A BRIEF HISTORY OF BSP Bank South Paciﬁ c Limited opened its doors in 1957 in Port Moresby as a branch of the Na(cid:415) onal Bank of Australasia Limited. In 1995 a consor(cid:415) um of Papua New Guinea businesses acquired the bank crea(cid:415) ng the ﬁ rst PNG private sector owned bank. Bank South Paciﬁ c purchased the State Owned - Papua New Guinea Banking Corpora(cid:415) on (PNGBC - formerly CBA PNG) in 2002 crea(cid:415) ng the largest Bank in PNG. Other acquisi(cid:415) ons followed: Na(cid:415) onal Bank of Solomon Islands 2007, Habib Bank in Fiji in 2006, Colonial Group of Companies (Banking & Life Businesses) in Fiji in 2010. Bank South Paciﬁ c rebranded to become “BSP” in 2009. Our shareholders include major PNG Ins(cid:415) tu(cid:415) ons – IPBC, Nasfund, Nambawan Super, Petroleum Resources Kutubu, Credit Corpora(cid:415) on, MVIL, PNG Teachers Savings & Loan, Comrade Trustees, and the Interna(cid:415) onal Finance Corporate (IFC). In 2012, BSP’s account opening process employing a tablet computer and instant card issuance, won the award for the world’s Best Bank Led Mobile Money Program at the 2012 Connected World Global Awards. In 2014, BSP Group achieved loan growth of 28%, and a 4% reduc(cid:415) on in opera(cid:415) ng costs, suppor(cid:415) ng growth in annual proﬁ t to over K507 million. There were no increases in fees during the year, but fee income grew as the volume of customer transac(cid:415) ons con(cid:415) nued to increase, par(cid:415) cularly through the electronic banking channels, which now represent more than 80% of total customer transac(cid:415) ons. Launch of the new subsidiary company BSP Finance in PNG and Fiji in 2014. BSP has been interna(cid:415) onally recognised for its underlying liquidity and capital strength, including “The Banker” 2014 Top 1000 Banks, ranked: #1 Top 5 Returns on Capital (ROC) in the Asia Paciﬁ c (excluding Japan & China). #1 Top 5 Returns on Assets (ROA) in the Asia Paciﬁ c (excluding Japan & China). #14 Top 25 Return on Capital (%). 2015 was very much a milestone year for BSP in many ways. Despite economic condi(cid:415) ons BSP recorded a proﬁ t of K531.9 million, represen(cid:415) ng a 4.8% increase on 2014, for its shareholders. The expansion of BSP across the paciﬁ c also entered a new phase with the acquisi(cid:415) on of the former Westpac busi- nesses in Cook Islands, Samoa, Solomon Islands and Tonga, with Vanuatu to complete on July 1st, 2016. During 2015 PNG celebrated its 40th anniversary of independence and the country successfully hosted the Paciﬁ c Games in Port Moresby of which BSP was the Oﬃ cial Sponsor. Bank South Paciﬁ c con(cid:415) nues to be a dominant force in the market leading the way with innova(cid:415) on and technology. Total Assets Net Proﬁ t A(cid:332) er Tax 13.33 11.68 n o i l l i B a n K i 18.20 15.76 15.88 507.339 531.879 407.744 436.828 355.947 n o i l l i M a n K i 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Net Loans and Advances 8.62 Dividends Paid 6.76 5.31 4.30 4.80 369.810 309.141 258.975 271.686 223.526 n o i l l i M a n K i n o i l l i M a n K i 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 6 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 7 BOARD OF DIRECTORS SIR KOSTAS CONSTANTINOU, OBE | Chairman. Director since April 2009. Appointed Chairman February 2011. SIR NAGORA BOGAN, KBE, LLB | Non - Execu(cid:415) ve Director. Director since June 2003. Sir Kostas Constan(cid:415) nou, OBE is a prominent business ﬁ gure in Papua New Guinea, holding a number of high level public and private sector appointments. He is a Chairman of various companies, including Airways Hotel Limited and Airways Residences Limited, Lamana Hotel Limited, Lamana Development Limited, Alotau Interna(cid:415) onal Hotel and Gazelle Interna(cid:415) onal Hotel. He is a Director of Heritage Park Hotel, Honiara, and Grand Paciﬁ c Hotel, Fiji. Sir Kostas is a Director of listed company: Oil Search Limited. He was Chairman of 2015 Paciﬁ c Games Authority from 2011 to 2015, Deputy President of Employers Federa(cid:415) on of Papua New Guinea, Honorary Consul for Greece in Papua New Guinea and Trade Commissioner of Solomon Islands to Papua New Guinea. Sir Nagora Bogan graduated with a Bachelor of Law from the University of Papua New Guinea in 1978. In 1992, Sir Nagora was appointed Commissioner General of the PNG Internal Revenue Commission. In 1996, he was appointed as PNG’s Ambassador to the United States with accredita(cid:415) on as Ambassador to Mexico and High Commissioner to Canada. In 2002, Sir Nagora became a private business entrepreneur. He is Chairman and CEO of In Touch Media Limited, a mul(cid:415) media/ record label company and Director on several private company boards. Sir Nagora received his knighthood during 1997 in recogni(cid:415) on of his dis(cid:415) nguished public service. ROBIN FLEMING, CSM, MBA, MMGT | Chief Execu(cid:415) ve Oﬃ cer. Director since June 2013. AUGUSTINE MANO, BEcon, MSc | Non - Execu(cid:415) ve Director. Director since August 2014. Robin Fleming was appointed CEO of Bank of South Paciﬁ c Limited in June 2013. Before his appointment as CEO, he had been Deputy CEO and Chief Risk Oﬃ cer since 2009. Prior to that, Mr Fleming held senior execu(cid:415) ve roles as Chief Risk Oﬃ cer, General Manager Corporate & Interna(cid:415) onal, and Head of Risk Management with BSP. Prior to the merger of Bank of South Paciﬁ c Limited and PNGBC Limited, Robin held senior management roles with PNGBC. He has worked in PNG for over 30 years and holds a MBA and a Master of Management from Charles Sturt University. Augus(cid:415) ne Mano is an economist and has been the Managing Director of the Mineral Resource Development Corpora(cid:415) on (MRDC) for the last 7 years. MRDC is the en(cid:415) ty responsible for managing landowner investments and Mr Mano has lead the organisa(cid:415) on in undertaking some major investments such as the PNG LNG project and property development and hospitality within PNG, Fiji and Samoa. He has extensive skills and experience in the mining and petroleum sector. He is also involved with construc(cid:415) on, transporta(cid:415) on and Insurance industry. He holds a Master of Science Petroleum Economics from the Dundee University, Scotland and Bachelor degrees in Economics and Environmental Science from the University of PNG. Mr Mano currently holds Chairman and Directorship in a number of en(cid:415) (cid:415) es, including MRDC and its subsidiaries companies, Hevili(cid:332) Group, Insurance Paciﬁ c and Pearl Resort, PNG Air, GFS and Handy Group. TOM FOX, OBE, BEc | Deputy Chairman, Non - Execu(cid:415) ve Director. Director since June 1993. FREDA TALAO, LLM, MPHIL, MAICD | Non - Execu(cid:415) ve Director. Director since April 2012. Tom Fox holds a Bachelor of Economics degree from the University of Papua New Guinea. He commenced his career with the Reserve Bank of Australia, and gained experience in senior management roles within semi-government ins(cid:415) tu(cid:415) ons, and private sector companies, including serving as the Managing Director of the Investment Corpora(cid:415) on of Papua New Guinea for eight years. His other current directorships include: Teyo No. 1 Limited, Akura Limited, BSP Capital Ltd, BSP Finance (Fiji) Ltd, BSP Life (Fiji) Ltd and BSP Healthcare Ltd. Mr Fox is also a trustee for the Ins(cid:415) tute of Na(cid:415) onal Aﬀ airs, and a founda(cid:415) on member and Fellow of the PNG Ins(cid:415) tute of Directors. GEREA AOPI, CBE, MBA | Non - Execu(cid:415) ve Director. Director since April 2002. Gerea Aopi has achieved several ter(cid:415) ary degrees in Papua New Guinea, and a Masters of Business Administra(cid:415) on from the University of Queensland. Mr Aopi has substan(cid:415) al public service and business experience in PNG, including Secretary of Finance and Planning and Managing Director of Telikom PNG Limited. He presently holds the posi(cid:415) on of Execu(cid:415) ve General Manager, Stakeholder Engagement at Oil Search Limited. He was previously the Chairman of Telikom PNG Limited and Independent Public Business Corpora(cid:415) on (IPBC). Mr Aopi is a Director of Oil Search Limited, Steamships Trading Company Limited and is involved in a number of other private sector and charitable organisa(cid:415) ons in Papua New Guinea. DR ILA TEMU, PhD, MEc | Non - Execu(cid:415) ve Director. Director since June 2003. Dr Ila Temu was appointed to his current role as Country Manager Barrick PNG in June 2011. Prior to this, he held senior execu(cid:415) ve roles in Placer Dome Niugini both overseas and in PNG. He has also held senior posi(cid:415) ons in a number of other public organisa(cid:415) ons including Senior Lecturer in Economics at UPNG, Director of the Na(cid:415) onal Research Ins(cid:415) tute and Managing Director of Mineral Resources Development Company (MRDC). Dr Temu held director and membership roles in Dome Resources, Kina Finance Ltd, PNG Chamber of Mines and Petroleum, IPBC, PNG Employers Federa(cid:415) on and was Chairman of PNG Ports Corpora(cid:415) on Ltd for 5 years. He is currently a Director of Kumul Petroleum Holdings Ltd, Kina Petroleum Ltd and a member of the Governing body of the Divine Word University. Dr Temu holds a Bachelor of Economics (Hons) from the University of Papua New Guinea, a Masters in Agricultural Development Economics from the Australian Na(cid:415) onal University, Canberra, Australia and a Ph.D in Agricultural Economics from the University of California, Davis, USA. Freda is a lawyer and development specialist. She holds a Law Degree from University of Papua New Guinea, Masters in Law (LLM) from Bond University, a Master of Philosophy in Law (MPHIL) from University of Queensland and a Diploma in Business from Southern Cross University. Currently, she is Head of the PNG Prac(cid:415) ce for Oceanie Lawyers in Brisbane, Australia and a member of the External Stakeholders Advisory Panel (ESAP) to the Hidden Valley Joint Venture (HVJV) Mine in Wau, Morobe Province. Freda was Director on several boards previously including the former Civil Avia(cid:415) on Authority (CAA), the Papua New Guinea Mama Graun Conserva(cid:415) on Trust Fund, the Na(cid:415) onal Airports Corpora(cid:415) on, the Airport City Development Authority, and the Individual and Community Advocacy Forum (ICRAF). She has also held senior execu(cid:415) ve management roles including Deputy Registrar of the Na(cid:415) onal Court, Execu(cid:415) ve Director of PEACE Founda(cid:415) on and was a senior development specialist with AusAID. She was one of six PNG women nominated for the Nobel Peace Prize as part of the 1,000 Peace Women for the Nobel Peace Prize Project in 2005 and was awarded an Independence Award for services to women, children and community in 2000. GEOFFREY J. ROBB, BA, MBA, OAM | Non - Execu(cid:415) ve Director. Director since April 2012. Geoﬀ rey Robb is a highly qualiﬁ ed and experienced banker having occupied several senior Execu(cid:415) ve posi(cid:415) ons including Head of Resource Finance at Bank of America, and Global Head of Acquisi(cid:415) on Finance and Head of Complex and Strategic Transac(cid:415) ons with ANZ Banking Group. As Head of Bank of America in Melbourne, he led resource ﬁ nancings with BHP, CRA, Elders Resources, Bougainville Copper, Ok Tedi and Porgera. He holds MBAs from the Interna(cid:415) onal Management Ins(cid:415) tute Geneva and Macquarie University. Mr Robb has travelled extensively in emerging markets and has received the Medal of the Order of Australia for his services to mountaineering and charity. He is also on the Board of BSP Capital Ltd, Bank of South Paciﬁ c Tonga Ltd. He is Chairman of the Board Audit, Risk and Compliance Commi(cid:425) ee. ERNEST BRIAN GANGLOFF, CPA, MAICD | Non - Execu(cid:415) ve Director. Director since November 2013. Ernest Gangloﬀ is an Accountant and registered with CPA PNG and the Accountants’ Registra(cid:415) on Board. Mr Gangloﬀ has extensive experience in the areas of risk management, internal audit and corporate governance. He has over 30 years professional experience with over 15 years in Senior Management posi(cid:415) ons. Mr Gangloﬀ re(cid:415) red as Partner with Deloi(cid:425) e in May 2013 and established Gangloﬀ Consul(cid:415) ng in June 2013. He is also a director of Gangloﬀ Consul(cid:415) ng Ltd, Laurabada Investments Ltd and New Britain Palm Oil Ltd. Mr Gangloﬀ is a Council Member of the of the Ins(cid:415) tute of Na(cid:415) onal Aﬀ airs and the Vice President of the Business Council of PNG and member of Australian Ins(cid:415) tute of Company Directors. He is also Adjunct Professor of the School of Business, UPNG. 8 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 9 GROUP CEO’S REPORT 2015 was very much a milestone year for BSP in many ways. Despite economic condi(cid:415) ons that became more challenging as the year progressed BSP was able to report another record proﬁ t of K531.9 million, represen(cid:415) ng a 4.8% increase on 2014, for its shareholders. The expansion of BSP across the Paciﬁ c also entered a new phase with our acquisi(cid:415) on of the former Westpac businesses in Cook Islands, Samoa, Solo- mon Islands and Tonga, with Vanuatu to complete on July 1st, 2016. During 2015 PNG celebrated its 40th anniversary of independence and the country successfully hosted the Paciﬁ c Games in Port Moresby of which BSP was the Oﬃ cial Sponsor. Our Solomon Islands business also contributed posi(cid:415) vely in 2015 with a proﬁ t of S$43.2 million being S$9.7 million above 2014. The Corporate and Retail teams both delivered on their growth targets with ongoing focus on our echannels capabili(cid:415) es and sales. The team in Solomon Islands also suc- cessfully merged the BSP and former Westpac teams following the comple- (cid:415) on of the acquisi(cid:415) on of the Westpac business at the end of October 2015. PNG’s economy grew by approximately 9.9% throughout 2015 with the growth driven predominantly by revenues associated by the PNG LNG proj- ect. This growth was down somewhat on the 2014 outcome of 13.3% but nevertheless remained well above its South Paciﬁ c neighbours and also many of its emerging market peers. Commodity prices in general and energy prices in par(cid:415) cular strongly inﬂ u- enced the PNG economy at a macro level. With signiﬁ cant reduc(cid:415) ons in oil and LNG prices worldwide, revenues associated with resource projects such as PNG LNG, which had been expected to be strong contributors to Government revenues, contracted substan(cid:415) ally. This was exacerbated to some degree by the onset of El Nino drought con- di(cid:415) ons in the second half of 2015. The drought aﬀ ected the opera(cid:415) ons of the Ok Tedi mine in Western Province with the mine being closed from August 2015 with impact on many local businesses and foreign exchange in ﬂ ows. Ok Tedi is expected to re-commence opera(cid:415) ons in March 2016 with rainfall an(cid:415) cipated to permit cargo and copper/gold extracts to move up and down the Fly River. Barrick’s Porgera mine was also closed for a short period. Notwithstanding a realignment of PNG’s GDP outcomes to more nor- malised levels, BSP was able to improve its proﬁ t performance in key mar- ket segments. Our Corporate Banking team in PNG leveraged its strong re- la(cid:415) onships with our customers, and BSP’s capabili(cid:415) es geographically in all areas of PNG, as well as our reach across all market segments to maximise lending opportuni(cid:415) es and cross sell our full range of products and services to these customers. As a result BSP’s lending market share in PNG by year end was 55%, an increase from 51.5% at the beginning of the year, with Corporate being the major driver of this growth. Our Retail team in PNG con(cid:415) nued to maximise the retail sales opportuni(cid:415) es oﬀ ered by our extensive and comprehensive network across PNG. There was ongoing emphasis on ﬁ nancial inclusion with almost 200,000 banking accounts opened in 2015, of which 40,000 were fee free for children and students, and 60,000 fee free designated savings accounts. Retail lending, par(cid:415) cularly our personal loan and housing loan products were also well promoted and sold by our Retail lending sales teams, and whilst lower full (cid:415) me employment levels had an impact on delinquencies, the performance of this product was s(cid:415) ll be(cid:425) er than plan. A crucial dependency for broader access to housing loans, which is key to wealth crea(cid:415) on for individuals, is availability of land and Government ini(cid:415) a(cid:415) ves for land availability in the major urban area of Port Moresby should come to frui(cid:415) on in 2016. BSP’s Smart Business SME product oﬀ erings were well promoted in all ma- jor centres of PNG. Our focus on the SME market segment is unparalleled in PNG and prospects for con(cid:415) nued growth in this segment are strong. Stra- tegic focus on development and promo(cid:415) on of our echannels capabili(cid:415) es resulted in increased transac(cid:415) onal ac(cid:415) vity across our extensive network of ATM’s merchant terminals, and mobile phone banking. BSP Fiji maintained its growth trajectory with a proﬁ t of F$31 million which was an increase of F$9.4 million on 2014 in the most compe(cid:415) (cid:415) ve market in the South Paciﬁ c. The team in Fiji also successfully delivered a core banking system upgrade in September 2015 ahead of (cid:415) me and under budget which was a great achievement for the project team. BSP Life also performed well with a proﬁ t of F$13.7 million, an improvement of F$2.7 million on the prior year. The core system upgrade for BSP Life is s(cid:415) ll progressing and there is renewed focus for comple(cid:415) on in 2016. What is more pleasing from a group perspec(cid:415) ve is that these excep(cid:415) onal proﬁ t outcomes were achieved despite key management and staﬀ in all businesses in PNG being heavily involved in the acquisi(cid:415) on of Westpac’s businesses in Cook Islands, Samoa, Solomon Islands and Tonga, and their successful transi(cid:415) on to BSP. The response from staﬀ in our new countries was posi(cid:415) ve and engaged and we look forward to their contribu(cid:415) ons to BSP in coming years. BSP Finance con(cid:415) nued its penetra(cid:415) on of the markets in PNG and Fiji, with be(cid:425) er than planned ﬁ nancial outcomes. Our expansion plans for BSP Fi- nance con(cid:415) nue in 2016 and posi(cid:415) ve proﬁ t contribu(cid:415) ons are expected this year. Across all levels of the Bank we con(cid:415) nued to promote BSP’s Vision and Core Values – Integrity, Professionalism, Leadership, Quality, People, Teamwork, Community. Our Vision and Values were also integral to our integra(cid:415) on ac- (cid:415) vi(cid:415) es for Cook Islands, Samoa, Solomon Islands and Tonga. The accompa- nying icare program con(cid:415) nues and everyone at BSP is commi(cid:425) ed to service and delivery aligned to our values and icare. Our successful Leadership Development Program (LDP) was extended in 2015 with a further 20 staﬀ being added to the program including 2 staﬀ each from Fiji, Solomon Islands, Samoa and 1 each from Cook Islands and Tonga. The LDP for our 35 par(cid:415) cipants involves in house training, internal secondments, overseas secondments, post graduate courses and manage- ment training. This con(cid:415) nues to be a signiﬁ cant investment, in terms of both (cid:415) me and money, to develop and groom our staﬀ for the future lead- ership opportuni(cid:415) es that will con(cid:415) nue to arise for all our staﬀ across the Paciﬁ c. Special thanks also go to the President and senior management of the Bank of Philippine Islands who facilitate our secondment program. Six staﬀ par- (cid:415) cipated in 12 week secondment with Bank of Philippine Islands during 2015. This program is beneﬁ cial in the professional and personal develop- ment of our staﬀ in the LDP. The outlook for BSP remains posi(cid:415) ve notwithstanding some more challeng- ing global economic condi(cid:415) ons, our board led by our Chairman Sir Kostas Constan(cid:415) nou con(cid:415) nues to provide management with support to achieve the boards strategic objec(cid:415) ves for BSP which are directed to con(cid:415) nuous improvement of customer service outcomes, achieving organic growth targets and maximising non organic growth opportuni(cid:415) es aligned to our vision. I wish to thank all staﬀ in BSP, in all our businesses and each of the countries in which we operate, for their eﬀ orts and support in delivering these record results for our shareholders, and I look forward to their ongoing commit- ment in 2016. Robin Fleming, CSM Robin Fleming, CSM Group Chief Execu(cid:415) ve Oﬃ cer 10 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 11 Strategic Business Unit Reports The daily execu(cid:415) on of the BSP’s business opera(cid:415) ons is the responsibility of the Strategic Business Units (SBUs). The SBUs are Retail Banking, Corporate, Treasury, Paramount Banking, Group Risk Management, Human Resources, Opera(cid:415) ons and Informa(cid:415) on Technology, and Finance & Planning. Here are reports and highlights of each SBU performance in 2015. RETAIL BANKING BSP’s Retail SBU is responsible for the delivery of banking services via the bank’s extensive urban and rural branch network in PNG, the agency network, and electronic banking channels to the Retail segment of the market, including Small and Medium Enterprises (SMEs). It also drives the bank’s very ac(cid:415) ve par(cid:415) cipa(cid:415) on in ﬁ nancial inclusion programs. The SBU also provides opera(cid:415) onal support and oversight to the branches in the Cook Islands, Samoa, Solomon Islands, and Tonga (and Vanuatu when the transac(cid:415) on completes in mid 2016). In 2015, Retail con(cid:415) nued its focus on be(cid:425) er access to services for customers, and growth in customer numbers con(cid:415) nued. Services at Kerema, Higaturu, Maprik, Gusap and Banz sub branches were upgraded with BSP’s loan origina(cid:415) on system being made available so that consumer borrowers could apply for loans at these loca(cid:415) ons rather than traveling to a branch in the provincial centres. Where loan applica(cid:415) ons are approved, the documenta(cid:415) on and funding is now arranged at the same sub branch. More complex cheque deposit transac(cid:415) ons were also enabled at these loca(cid:415) ons where access to the Kina Automated Transfer (KATs) system was introduced. Banking services for SMEs were also enhanced during the year and the ﬁ rst dedicated SME Business Centre in PNG was opened by BSP at the Waterfront shopping centre, Port Moresby. The SME Business Centre has dedicated SME loan oﬃ cers and dedicated tellers assigned to service SME customers. During 2015 BSP began the process of replacing our VeriFone EFTPoS terminal ﬂ eet with new Ingenico EFTPoS terminals. Addi(cid:415) onal func(cid:415) onality will be added to the Ingenico terminals during the course of 2016. Customer account numbers con(cid:415) nued to grow during 2015 with nearly 200,000 new accounts opened. 30% of this growth was in savings products while a further 20% was growth in Kids and Student accounts. The remaining 50% related to growth in the number of day-to-day transac(cid:415) on accounts. The growth in Kids and Student accounts complemented BSP’s ongoing commitment and eﬀ ort in banking educa(cid:415) on. Our eﬀ orts with ﬁ nancial inclusion and providing be(cid:425) er access to banking services saw the con(cid:415) nued growth of our Mobile Banking channel. Transac(cid:415) ons for 2015 were 35 million, an increase of 20% growth over the 2014 ac(cid:415) vi(cid:415) es. BSP also took a major step forward in improving ﬁ nancial system access by making our ATMs and EFTPoS network available to customers of MiBank, a licensed micro bank. Through this arrangement we have assisted MiBank to issue debit cards to their clients, who can now use BSP ATMs or EFTPoS devices in PNG. Despite a more challenging environment for consumer ﬁ nance, our personal loan growth was strong again in 2015. New lending under the First Home Ownership Scheme also started to gain some trac(cid:415) on as more land was released for development. CORPORATE sell of electronic solu(cid:415) ons and a signiﬁ cant upli(cid:332) in Kina lending market share to 56.5%. Deposits from our Corporate clients grew 28%, well above PNG system, exceeding K700 million during the year. Customer sa(cid:415) sfac(cid:415) on remains the cornerstone of Corporate Banking’s strategy and we con(cid:415) nue to ac(cid:415) on required changes to improve our customer-service culture. During 2015 we completed our third customer sa(cid:415) sfac(cid:415) on survey, through an independent market research ﬁ rm, who surveyed over 340 customers. The overall survey results highlighted certain improvements that need to be made to increase customer sa(cid:415) sfac(cid:415) on across some key drivers of service including Rela(cid:415) onship Management, and Product and Service; and in the coordina(cid:415) on of our ac(cid:415) vi(cid:415) es with Retail and Treasury and foreign exchange. Each rela(cid:415) onship team has developed ac(cid:415) on plans to address their individual customers service and collabora(cid:415) on issues. Consistent with BSP’s approach to credit risk, we maintain a strong credit culture across Corporate Banking with focus on prudent credit risks and con(cid:415) nue a strong partnership with the Group Risk Management team. Together we proac(cid:415) vely monitor and control the quality of the loan por(cid:414) olio; promptly responding to any sector or customers demonstra(cid:415) ng stress in the slowing economic and currency liquidity environment. BSP’s “whole of bank” solu(cid:415) on incorporates dedicated rela(cid:415) onship management, extensive product suite, electronic solu(cid:415) ons, and access to the largest retail branch networks. This makes BSP one of the leading business partners in PNG and across the South Paciﬁ c. The Strategic Customer Support team con(cid:415) nues to work with internal business partners in Retail, Treasury, and Opera(cid:415) ons, our key customers and interna(cid:415) onal targets in the oil and gas and mining sectors delivering strong cross business unit and regional engagement, which cannot be matched by our compe(cid:415) tors. TREASURY The BSP Group operates across the Paciﬁ c in six jurisdic(cid:415) ons now. Each country has their own discrete foreign exchange regula(cid:415) ons and operates in ﬁ nancial markets where foreign exchange (FX) liquidity is derived from a narrow base of export industries and sources, and the dependence on imports are rela(cid:415) vely high. The role of BSP Treasury remains to: 1. foster and enhance rela(cid:415) onships with clients to provide Financial Markets services; and 2. manage market risk, funding balance sheet opera(cid:415) ons, manage liquidity risk, capital and capital planning, in line with pruden(cid:415) al requirements, ALCO direc(cid:415) ves and delegated Board authori(cid:415) es. PNG Treasury foreign exchange (FX) earnings were above plan for the year. 2015 was challenging, as import demand far exceeded export supply of foreign currency. Lower commodity prices, reduced produc(cid:415) on aﬀ ected by El Nino and temporary mine closures placed severe pressure on levels of available foreign currency liquidity and the oﬃ cial rate of exchange. In 2015 Corporate Banking again achieved strong results, improving market share, customer sa(cid:415) sfac(cid:415) on and growing proﬁ ts. We believe our people in Corporate Banking across PNG and the Paciﬁ c are our deﬁ ning compe(cid:415) (cid:415) ve advantage; and during the year we con(cid:415) nued to invest in a(cid:425) rac(cid:415) ng, retaining and mo(cid:415) va(cid:415) ng the best rela(cid:415) onship teams. The oﬃ cial Bank of Papua New Guinea (BPNG) rate of exchange fell steadily, by 13.75%, from US38.55 cents to US33.25 cents, throughout 2015. A stable Kina versus the Australian dollar, had the eﬀ ect of amplifying the currency imbalance. The Kina fell marginally 2.97% against the Australian dollar from AUD47.06 cents to AUD45.66 cents. Our people con(cid:415) nue their commitment to our Vision, as a team, to help our customers and communi(cid:415) es prosper. This year Corporate Banking in PNG con(cid:415) nued to deliver strong ﬁ nancial performance. The major drivers of this performance were growth in lending, par(cid:415) cularly in the area of infrastructure projects, improved cross- The Bank’s FX market share in PNG increased from 31.22% in 2014 to 33.29% in 2015. The Bank’s FX turnover fell 4.49%, while PNG FX market turnover reduced by 10.64%. Market share gained came predominantly from the Oil, Mining and Agricultural sectors. 12 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 13 STRATEGIC BUSINESS UNIT REPORTS The Bank con(cid:415) nued to invest surplus funds in government securi(cid:415) es. Government debt yield curves steepened over the course of the year, reﬂ ec(cid:415) ng evolving ﬁ scal condi(cid:415) ons. 28 day Central Bank Bills fell from 1.92% to 1.32%, 91 day Treasury Bills fell from 2.95% to 2.44%, 182 day Treasury Bills were unchanged at 4.65%, whilst 1 year Treasury rose 0.18% to 7.6%. Yields on longer dated Government issued Inscribed Stock increased 0.55% across the board for all series with maturi(cid:415) es between 2017 & 2031. Opera(cid:415) onally, PNG Treasury con(cid:415) nues to mi(cid:415) gate risk in line with world’s best prac(cid:415) ce and is ac(cid:415) vely focused on providing technical training, empowering staﬀ to con(cid:415) nue their development journey. Treasury dealing staﬀ all sat the Australian Financial Markets Associa(cid:415) on Foreign Exchange Markets Accredita(cid:415) on examina(cid:415) ons in November 2015, and will con(cid:415) nue further technical training in Foreign Exchange and Money Markets in 2016. The customer centric Treasury team con(cid:415) nue to strive to provide the best ﬁ nancial market solu(cid:415) ons to sa(cid:415) sfy customer needs, within the PNG regulatory framework. PARAMOUNT In 2015, Paramount Banking con(cid:415) nued to play a signiﬁ cant role in managing 49% of BSP’s liquidity por(cid:414) olio (which is 27% of the PNG ﬁ nancial system) against another challenging year with lower commodity prices and the temporary closure of Ok Tedi mine. Key to Paramount Banking’s performance is its strategic alliance with the Na(cid:415) onal Government and its key line agencies. Despite the decline in State Revenue, budget cuts and the slowdown of the economy impacted by the fall in commodity prices; Paramount Banking was able to maintain its liquidity por(cid:414) olio at K5.4 billion. Paramount Banking par(cid:415) cipated in the Provincial and District Treasurer’s and Administrator’s Conference “Wok Bung Wantaim” held in Lae, where various per(cid:415) nent aspects of Financial Intelligence Unit (FIU) and Proceeds of Crime Act (POCA) were emphasised to address con(cid:415) nuous fraudulent ac(cid:415) vi(cid:415) es on Government accounts. Paramount Banking Community Rela(cid:415) ons Oﬃ cers have also taken Financial Literacy training to landowners in the resources extrac(cid:415) on and development areas, in partnership with Retail Banking. In 2016, Paramount Banking will remain focused to improve our market share by maintaining a strong service culture to our segment base, par(cid:415) cularly to the overall Government segments, while maintaining strong risk management prac(cid:415) ces by developing staﬀ further with internal and external training courses. GROUP RISK MANAGEMENT Risk management within the BSP Group is independently overseen by various Business Units within the Group Risk Management strategic business unit. BSP has a Board approved Risk Appe(cid:415) te Statement (RAS) that reﬂ ects the level of aggregated risk that BSP is willing to assume and manage in the pursuit of its business objec(cid:415) ves. The RAS reﬂ ects BSP’s business and risk strategies which are measured by internal risk - return benchmarks. Credit Credit undertakes key ac(cid:415) vi(cid:415) es to manage credit risk. It is responsible for the overall credit quality of BSP’s loan por(cid:414) olio, implemen(cid:415) ng and reviewing credit policies and industry underwri(cid:415) ng standards, monitoring sector concentra(cid:415) on limits and por(cid:414) olio management responsibili(cid:415) es Credit risk is deﬁ ned as the poten(cid:415) al failure of a borrower or counter party to meet its contractual obliga(cid:415) ons. Within BSP Group, credit risk is managed by developing and undertaking an ongoing review of a credit risk strategy that iden(cid:415) ﬁ es our target market acceptance providing a pla(cid:414) orm to grow the business within deﬁ ned parameters to build a quality loan por(cid:414) olio across a broad range of sectors and countries where BSP operates. Senior BSP Management has the responsibility to implement credit risk strategy including developing policies and procedures for iden(cid:415) fying, 14 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 measuring, mi(cid:415) ga(cid:415) ng, monitoring, controlling and on a con(cid:415) nuous basis reviewing the eﬀ ec(cid:415) veness of the credit risk strategy and inherent credit culture. Good lending growth across all sectors of the PNG economy was achieved in 2015. Diversiﬁ ca(cid:415) on of the loan por(cid:414) olio across key economic sectors con(cid:415) nues to be closely monitored, providing a mi(cid:415) gant to the overall loan por(cid:414) olio exposures, to ensure that no signiﬁ cant concentra(cid:415) on risk develops that may impact the stability of the asset por(cid:414) olio performance. The property market con(cid:415) nues to be a sector that experienced a re- adjustment with supply outstripping demand leading to lower rental yields and capital growth. BSP con(cid:415) nues to monitor the exposure to the property sector undertaking appropriate periodic stress tes(cid:415) ng of the property loan por(cid:414) olio. Overall performance of the loan por(cid:414) olio remains sound in PNG with solid growth achieved in both the corporate and retail sectors. The Bank’s market share has increased in a compe(cid:415) (cid:415) ve market to 54%. Loan growth in Fiji and Solomon Islands has been sound as well with Fiji outperforming overall market growth. In 2015, overall retail delinquency rates increased with higher losses experienced in the Personal Loans por(cid:414) olio primarily from job losses reﬂ ec(cid:415) ng the subdued market condi(cid:415) ons. However, this remains under constant monitoring and within acceptable tolerance levels. The loan por(cid:414) olio weighted average risk ra(cid:415) ng is considered to be sound. The successful implementa(cid:415) on of the automated loan origina(cid:415) on system for unsecured personal loans, has resulted in a more consistent origina(cid:415) on process and improved turnaround (cid:415) mes for approval and funding. The loan origina(cid:415) on process is being expanded to all retail loan products including secured personal loans, housing loans, small to medium business sector loans incorpora(cid:415) ng a credit scorecard that will provide a consistent loan decision and automated origina(cid:415) on process providing improved turnaround (cid:415) mes for our retail and small business customers. Lending policies and procedures con(cid:415) nue to be reviewed on an ongoing basis to remain relevant to changes in the banking, regulatory and industry sectors. These reviews are due to con(cid:415) nuing changing market and product trends focusing on improving controls and repor(cid:415) ng in order to keep the Bank aligned with industry best prac(cid:415) ce for credit risk management standards. Training remained a key focus in 2015 and will con(cid:415) nue into 2016. The Moody’s online training introduced in 2012 and completed for circa 90% of Credit and Corporate staﬀ was con(cid:415) nued in 2015 with 31 staﬀ to complete the online training in 2016. The online training was complemented with Moody’s conduc(cid:415) ng formal classroom training sessions in Port Moresby. In addi(cid:415) on, Credit Management provides weekly in house training sessions with 24 speciﬁ c credit related learnings conducted during 2015 for Credit and Corporate staﬀ . Opera(cid:415) onal Risk The Opera(cid:415) onal Risk BU has broad opera(cid:415) onal risk management responsibili(cid:415) es across the Group. Opera(cid:415) onal risk is deﬁ ned as the risk of direct or indirect impacts resul(cid:415) ng from human factors, inadequate or failed internal processes and systems or external events. Opera(cid:415) onal risks are inherent in the Bank’s business ac(cid:415) vi(cid:415) es. The Bank has independent Opera(cid:415) onal Risk func(cid:415) ons in PNG, Fiji (both the Bank and Life Insurance opera(cid:415) ons), Solomon Islands and the newly acquired businesses in Samoa, Tonga and Cook Islands. The PNG Opera(cid:415) onal Risk Business Unit has been restructured to accommodate its “Group” func(cid:415) ons in terms of maintaining oversight and repor(cid:415) ng requirements in all countries where BSP operates. A new senior posi(cid:415) on as Head of Compliance and AML for the Group has been created repor(cid:415) ng directly to Head of Group Opera(cid:415) onal Risk and Compliance with two other new suppor(cid:415) ng roles to further strengthen the Bank’s capabili(cid:415) es on compliance and AML. In alignment to this strategy, the Bank’s Compliance func(cid:415) on has been moved from the Company Secretary’s oﬃ ce to Opera(cid:415) onal Risk. Some of the key highlights during 2015 included: • • • • • • • Con(cid:415) nual staﬀ reinforcement on opera(cid:415) onal risks, an(cid:415) -money laundering and fraud detec(cid:415) on through risk awareness workshops across the Bank; Implementa(cid:415) on of new AML monitoring systems; Undertaking regular risk and control analysis and where required develop risk mi(cid:415) ga(cid:415) on plans for key BSP processes; Training of Risk and Compliance Oﬃ cers in other South Paciﬁ c countries where BSP operates; Reviewing risk registers for each business unit to help them regularly monitor their key risks and the eﬀ ec(cid:415) veness of their internal controls; Reviewing the Top Enterprise Wide Risks across the Bank, as well as, the suppor(cid:415) ng controls to ensure that the risks are eﬀ ec(cid:415) vely mi(cid:415) gated and regularly monitored; and Assis(cid:415) ng execu(cid:415) ve management with analysis and regular repor(cid:415) ng of opera(cid:415) onal risk issues. Asset Management Asset Management manages the non-performing asset por(cid:414) olio. During 2015, the easing of the rental returns in the real estate market con(cid:415) nued from the previous year with a few property investment loans migra(cid:415) ng to non-accrual status. Whilst the rental returns have eased this ini(cid:415) ally did not reﬂ ect in the property prices however this is now having some impact par(cid:415) cularly with development proper(cid:415) es where premium for poten(cid:415) al development has diminished considerably. Non - accrual loans volume saw an increase in 2015 represen(cid:415) ng circa 1.4% of the Bank’s overall lending volumes in PNG. There is evidence of the market slowdown with the LNG project going from construc(cid:415) on to produc(cid:415) on phase and the scaling back of work forces and business contracts. We have seen an increase in defaul(cid:415) ng consumer loans for 2015. Delinquencies are closely monitored and managed and together with a new automated collec(cid:415) on system introduced in early 2015, the process between Retail and Asset Management has been streamlined for be(cid:425) er management of delinquent loans. A careful watch is being maintained on business/corporate loan segment and immediate remedial ac(cid:415) on being undertaken for any businesses/ companies showing signs of stress. Early warning signs and adverse account pa(cid:425) erns are iden(cid:415) ﬁ ed early with remedial plans in place for Watch List customers. Credit Inspec(cid:415) on Credit Inspec(cid:415) on provides an independent assessment of credit policy compliance and por(cid:414) olio quality assurance. The primary role of the Credit Inspec(cid:415) on Business Unit is to provide a professional, independent risk management func(cid:415) on of the best prac(cid:415) ce standard and por(cid:414) olio quality assurance which assists members of senior management and the Board via the Board Audit Risk & Compliance Commi(cid:425) ee (BARCC) in the eﬀ ec(cid:415) ve discharge of their responsibili(cid:415) es. The Credit Inspec(cid:415) on Business Unit provides BARCC with independent analysis, objec(cid:415) ve opinions and recommenda(cid:415) ons on the quality of credit risk assessment, credit approval, credit risk management, compliance, risk control and credit por(cid:414) olio repor(cid:415) ng concerning the ac(cid:415) vi(cid:415) es reviewed. • This Unit is responsible for the day to day execu(cid:415) on of “on-site” inspec(cid:415) ons (and where applicable “oﬀ -site” inspec(cid:415) ons) of the credit risk por(cid:414) olio within the Bank and related en(cid:415) (cid:415) es, in all jurisdic(cid:415) ons. The main aim is to achieve an early detec(cid:415) on of material shortcomings of credit risk and compliance with Group policies. In 2015, Credit Inspec(cid:415) on completed 11 monthly reports for Retail Banking (Personal Lending) and 12 reports for Corporate and Commercial Banking STRATEGIC BUSINESS UNIT REPORTS Rela(cid:415) onship Por(cid:414) olios. For Corporate Banking including Commercial, approximately 44% of the Corporate Rela(cid:415) onship Loan Por(cid:414) olios were reviewed by Credit Inspec(cid:415) on. Audit Audit undertakes regular internal audits of processes and procedures to maintain compliance with regula(cid:415) ons and BSP standards and retains an independent and direct repor(cid:415) ng line to the BARCC. The Group Risk Management Unit structure was implemented to allow a clear oversight of all the three risk lines of defence including Audit as the third and last defence in the risk management framework. BSP has independent internal audit func(cid:415) ons for the Group repor(cid:415) ng through the Head of Group Internal Audit, func(cid:415) onally to the BARCC and Group CEO and administra(cid:415) vely to the Group Chief Risk Oﬃ cer. Key audits during 2015 included Informa(cid:415) on Security, An(cid:415) -Virus Protec(cid:415) on and Support Services Units. The Internal Audit team also upgraded its audit so(cid:332) ware in the second half of 2015. Legal Legal Services provides the legal services and advice required for the opera(cid:415) on of the business. The Legal Unit provides or sources the legal services and advice required by the Bank in conduc(cid:415) ng its business, principally in the area of banking, commercial and securi(cid:415) es law, li(cid:415) ga(cid:415) on (both for and against the Bank) and regulatory compliance. To the extent possible, these services are provided by the ﬁ ve in house lawyers with external lawyers being engaged where deemed necessary or prudent. HUMAN RESOURCES The Human Resources SBU con(cid:415) nued to support the opera(cid:415) ons of Bank through its core HR Management func(cid:415) ons in 2015. The following ini(cid:415) a(cid:415) ves were implemented in collabora(cid:415) on with the respec(cid:415) ve SBUs in the Bank: Recruitment • Secured the con(cid:415) nued services of all staﬀ in the Westpac opera(cid:415) ons in Tonga, Samoa, Cook Islands and Solomon Islands, which BSP acquired. • • Facilitated the secondment of two senior oﬃ cers to BSP Solomon Islands to ﬁ ll the roles of Head of Retail and Finance Manager, repor(cid:415) ng to the Country Manager. Con(cid:415) nued our career choice workshops and recruitment fairs with Universi(cid:415) es and recruited twenty six (26) graduate trainees for the 2015 Graduate Development Program. Learning & Development • The 2015 Leadership Development Program (LDP) cohorts, numbering 15 a(cid:425) ended the General Management Program, Strategic Awareness & Business Acumen and Implemen(cid:415) ng Strategy courses with Melbourne Business School as part of their development. Each of the LDP cohorts also a(cid:425) ended two sessions of the Banks EXCO mee(cid:415) ng in the year, and par(cid:415) cipated in a number of Bank Strategic Impera(cid:415) ves project commi(cid:425) ees to develop their project management and business opera(cid:415) ons skills/knowledge in the Banking and Financial industry. Seconded six LDP staﬀ members out of the ﬁ (cid:332) een 2015 LDP cohorts to Bank of Philippines Island (BPI) for a period of three months. The par(cid:415) cipants were given the opportunity to present to the Board one key learning ini(cid:415) a(cid:415) ve they have iden(cid:415) ﬁ ed/ agreed with the respec(cid:415) ve SBU General Manager for implementa(cid:415) on in BSP in 2016. BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 15 STRATEGIC BUSINESS UNIT REPORTS Ongoing staﬀ training ini(cid:415) a(cid:415) ves for 2015 included: • Held a range of so(cid:332) and technical skills in customer service, presenta(cid:415) on skills, (cid:415) me management, communica(cid:415) on strategy and Microso(cid:332) Oﬃ ce training at the founda(cid:415) on level. • Conducted the iCare Customer ﬁ rst and Performance Management System training for employees in Solomon Islands, Cook Islands, Samoa and Tonga as part of the induc(cid:415) on program. Remunera(cid:415) on and Beneﬁ ts • Par(cid:415) cipated in the PNG Hay Market salary/beneﬁ t survey. • • • • Assisted in the development of Long Term Incen(cid:415) ve scheme for the Execu(cid:415) ve Management replacing the Share Op(cid:415) on scheme. Con(cid:415) nued to market the Bank’s Na(cid:415) onal Staﬀ Home Ownership Scheme and 150 loans were approved and construc(cid:415) on of their houses are proceeding. We have set an eligible employee database, for all Na(cid:415) onal staﬀ and will con(cid:415) nue to market the product to eligible employees in 2016. Assisted several staﬀ (ci(cid:415) zens/non-ci(cid:415) zens) seek overseas medical treatment, mainly in the Philippines, Singapore and India through the Medical Insurance Scheme. Facilitated Life Insurance beneﬁ ts payments to deceased employees nominated beneﬁ ciaries under the Bank’s Life Insurance Policy. HR Opera(cid:415) ons • Conducted the annual employee engagement survey . • Administra(cid:415) on procedures for HR processes were reviewed to increase produc(cid:415) vity and improve eﬃ ciency. Total staﬀ in BSP Group is 4,073. PNG has 2,802, Fiji - 803, Solomon Islands - 256, Cook Islands - 56, Samoa - 79 and Tonga - 77. Staﬀ turnover in 2015 was 8% compared to 12% in 2014. Total training mandays for 2015 was 9,185 equa(cid:415) ng to 3.0 mandays per employee. OPERATIONS AND INFORMATION TECHNOLOGY In addi(cid:415) on to support and project ac(cid:415) vi(cid:415) es which the SBU undertakes to support the ac(cid:415) vi(cid:415) es of the Bank, 2015 was characterised with signiﬁ cant tasks related to the purchase of Westpac opera(cid:415) ons in Solomon Island, Cook Islands, Samoa and Tonga. Immediately following the announcement for the prospec(cid:415) ve purchase of Westpac’s businesses in January, planning and coordina(cid:415) on commenced with both Westpac and our communica(cid:415) ons and technology partners to enable BSP to take control of the opera(cid:415) onal infrastructures as soon as possible with least possible impact to the business. Given the planned immediate transfer of the business post se(cid:425) lement, a Transi(cid:415) onal Services Agreement (TSA) was nego(cid:415) ated. This covered a myriad of ac(cid:415) vi(cid:415) es such that the day to day opera(cid:415) onal processing could con(cid:415) nue using Westpac infrastructure whilst BSP worked with vendors to deliver new or amended technologies. The an(cid:415) cipated dura(cid:415) on of the TSA support from Westpac was planned to last at least six months. However, through careful planning and implementa(cid:415) on, the larger components of the TSA support were terminated with the corresponding ac(cid:415) vi(cid:415) es being managed directly by BSP in PNG within an average dura(cid:415) on of less than four months. From an opera(cid:415) onal perspec(cid:415) ve, whereas Westpac fully supported these Paciﬁ c Island Countries from their central base in Fiji, our selected opera(cid:415) ng model was to rebuild the banking knowledge in country as much as possible but to retain central control over some support ac(cid:415) vi(cid:415) es where risk reduc(cid:415) on and economies of scale made signiﬁ cant impact. As such, the PNG opera(cid:415) on is providing support for all technological day to day processing, scheme card processing, reconcilia(cid:415) ons and some aspects of 16 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 Interna(cid:415) onal Opera(cid:415) ons. FINANCE & PLANNING Changes have been implemented to our opera(cid:415) ons, to cater speciﬁ cally for the Paciﬁ c Islands Countries which, in some cases such as IT, require work shi(cid:332) s to ensure that assistance is immediately available during their opera(cid:415) ng (cid:415) me zones. The end to end migra(cid:415) on ac(cid:415) vi(cid:415) es above took signiﬁ cant (cid:415) me and eﬀ ort by a large group within the SBU, beginning in January and mostly ending at (cid:415) me of the migra(cid:415) on of the TSA ac(cid:415) vi(cid:415) es between September and November. This was largely accomplished alongside their normal day to day tasks, demonstra(cid:415) ng the level of dedica(cid:415) on of BSP’s employees to strategic objec(cid:415) ves. In PNG, this year saw the implementa(cid:415) on of the third segment of the Kina Automated Transfer (KATS) Project namely Credit Transfers enabling smaller value payments to be processed electronically thereby obvia(cid:415) ng the need to issue cheques. In the case of BSP, we have interfaced this to the internet banking applica(cid:415) on such that any credit transfer captured using the channel is immediately processed without the need for manual interven(cid:415) on. Further development has been made to BSP’s Lendfast loan processing applica(cid:415) on such that, in addi(cid:415) on to the automated processing of unsecured personal lending, we have expanded the products supported by the system to include Savings Secured, SME and Housing Loans. This has resulted in much faster turnaround on transac(cid:415) ons as well as greater control and auditability. We have also supported the introduc(cid:415) on of a new Collec(cid:415) ons system which facilitates the management of retail collec(cid:415) ons including priori(cid:415) sa(cid:415) on of cases using predetermined ﬁ ltering criteria, full details of all customer contact as well as automated genera(cid:415) on of account pos(cid:415) ngs. Within the Interna(cid:415) onal Opera(cid:415) ons area, the business has experienced a four - fold increase in transac(cid:415) onal volumes during the past 18 months. Combined with new BPNG Opera(cid:415) onal Guidelines issued in March 2015 and related compliance requirements, this has resulted in a much greater workload for the team. In order to be(cid:425) er manage ﬁ xed assets we have implemented a new Asset Management System covering the full life cycle of assets from ini(cid:415) al issuance of purchase order to deployment, maintenance and deprecia(cid:415) on on a fully automated basis including accoun(cid:415) ng interface to our general ledger. This has not only allowed for greater eﬃ ciency and control of the asset but has also reduced turnaround (cid:415) me and resource requirements on the invoice approval and payment process. In terms of construc(cid:415) on projects, signiﬁ cant ac(cid:415) vity has con(cid:415) nued throughout this year. Despite construc(cid:415) on delays beyond our control, the new Security Building and new Data Centre were delivered during Q4 2015. The former has already been occupied whereas the la(cid:425) er will be ac(cid:415) vated during Q1 2016. The aforemen(cid:415) oned construc(cid:415) on delays have also aﬀ ected the comple(cid:415) on of our new Waigani Head Oﬃ ce (previously referred to as Paciﬁ c Opera(cid:415) ons) which we now expect to be delivered by the end of Q3 2016 with occupa(cid:415) on to take place by end of year. Several sub branches have been delivered including in Banz and Kerevat; Tabubil Branch has been refurbished; Lending Centres have been created within the branch conﬁ nes of Wewak, Bulolo and Lae Market; a new kiosk has been built within the redevelopment at Jackson’s Airport Interna(cid:415) onal Terminal and a mini branch was created at the Athletes’ Village for the dura(cid:415) on of the Paciﬁ c Games. As part of our eﬀ orts to implement a property strategy where only strategic assets are owned directly by the Bank, we have disposed of our ownership of Boroko Banking Centre and the shareholding in the property company which owns BSP Haus. In both cases we have retained long term leases for our retail branches opera(cid:415) ng in these loca(cid:415) ons. 2015 was a con(cid:415) nua(cid:415) on of the constant improvement of key deliverables of repor(cid:415) ng for the Group. It was also a demanding but exci(cid:415) ng year for the Finance & Planning team with signiﬁ cant resources allocated to successfully acquire and integrate the Westpac businesses into BSP, being involved in due diligence ac(cid:415) vi(cid:415) es right through to processing of se(cid:425) lement entries and incep(cid:415) on of repor(cid:415) ng protocols. Also in 2015, a key strategic deliverable was to take ownership of all balance sheet reconcilia(cid:415) ons to ensure high standards of internal controls in the accoun(cid:415) ng and repor(cid:415) ng system as the BSP group grows in size and complexity. Westpac Acquisi(cid:415) on and Integra(cid:415) on The Finance & Planning team provided solid support for this major strategic ini(cid:415) a(cid:415) ve during 2015. BSP delegated authori(cid:415) es were rolled out to each of the new en(cid:415) (cid:415) es. Insurance policies for the business and employees were acquired and upgraded where needed, in line with BSP Group standards and the new members of the BSP family now enjoy the full suite of medical beneﬁ ts that BSP Group oﬀ ers to its employees. Func(cid:415) ons which were previously performed by Westpac in Fiji, were transferred to BSP PNG, a key one being the payroll process. Payroll staﬀ members worked with the Westpac Fiji team to adopt the payroll resources, ensuring a smooth transi(cid:415) on with all personnel paid correctly and on (cid:415) me from the ﬁ rst pay run. Dividend and Head Oﬃ ce alloca(cid:415) on policies and calcula(cid:415) ons were ﬁ nalised. Balance dates for the acquired en(cid:415) (cid:415) es have been converted from September to December for the ﬁ rst set of audited accounts for the newly acquired en(cid:415) (cid:415) es under BSP accoun(cid:415) ng policies. Management Repor(cid:415) ng The acquisi(cid:415) on of banking opera(cid:415) ons in Cook Islands, Samoa, Tonga and the Solomon Islands placed addi(cid:415) onal repor(cid:415) ng requirements on those countries and on BSP’s head oﬃ ce repor(cid:415) ng team. To manage the increasing repor(cid:415) ng needs and complexity of the Group, a new consolida(cid:415) on and repor(cid:415) ng database was developed. Smarter planning and diligent task execu(cid:415) on allowed the team to meet (cid:415) ght deadlines, reduce month end repor(cid:415) ng (cid:415) melines, and increase subject coverage, improving report format and content for management and key stakeholders. Strategy and Planning Team The Strategy and Planning team expanded with the addi(cid:415) on of an economist into its ranks in 2015, allowing the produc(cid:415) on of a Quarterly Economic Bulle(cid:415) n, from June 2015. The team played a more ac(cid:415) ve role in 2015 in the budge(cid:415) ng and strategic planning and repor(cid:415) ng cycles, not just in PNG, but also across the new acquisi(cid:415) ons in the Paciﬁ c. Data Control and Analy(cid:415) cs In 2015, Data Control and Analy(cid:415) cs implemented training it received through its Business Intelligence vendors. This allowed the team to design data STRATEGIC BUSINESS UNIT REPORTS structures that improve processing (cid:415) me and allow improved segmenta(cid:415) on analysis in data warehouse; update data structures in ﬁ nancial models to allow for more accurate repor(cid:415) ng; and create interac(cid:415) ve dashboards for Retail SBU allowing relevant Branch KPI data to be reported. In addi(cid:415) on to Retail, other SBUs have also been supported especially with regards to compliance repor(cid:415) ng. Improved systems knowledge has allowed Data Control & Analy(cid:415) cs to improve (cid:415) meliness and accuracy of repor(cid:415) ng for the middle oﬃ ce and governance teams in Finance & Planning, for Treasury, ALCO and BPNG repor(cid:415) ng. Data Analy(cid:415) cs and Control has also taken on the administra(cid:415) on of Tech One, the Bank’s procurement, accounts payable and asset management system that was implemented in July 2015, featuring an integrated workﬂ ow system and document image management. Consolida(cid:415) on With the increasing number of related en(cid:415) (cid:415) es, Finance & Planning, as part of its process improvement ini(cid:415) a(cid:415) ves worked on fully automa(cid:415) ng the consolida(cid:415) on process. Beneﬁ ts of this new consolida(cid:415) on structure include eﬀ ec(cid:415) ve and eﬃ cient month end process and more importantly, a controlled process with the capacity to audit and track data ﬂ ow throughout the consolida(cid:415) on process. Further beneﬁ ts include the ability to centralise consolida(cid:415) ons with easy data collec(cid:415) on and, ease of managing and integra(cid:415) ng ledger informa(cid:415) on across group enterprises. People Finance & Planning’s nominee in BSP’s Leadership Development Program a(cid:425) ended courses at the Melbourne Business School, and spent three months at the Bank of Philippine Islands on a secondment with their accoun(cid:415) ng and corporate planning sec(cid:415) on, obtaining valuable insights into planning and repor(cid:415) ng processes. Key members of the PNG team were deployed to relieve a senior ﬁ nance and planning role vacancies which arose in the Solomon Islands. Late in 2015, addi(cid:415) onal resources have been engaged in the repor(cid:415) ng and strategy sec(cid:415) ons, to increase the capacity of Finance & Planning to deliver on the substan(cid:415) al repor(cid:415) ng and strategic challenges that accompany BSP’s growth and complexity. Finance & Planning will con(cid:415) nue to: • • Invest in staﬀ skill and knowledge through training and mentorship and scholarships and achieve demonstrable acquisi(cid:415) on of new or addi(cid:415) onal professional exper(cid:415) se, with a corresponding reduc(cid:415) on of reliance on external consul(cid:415) ng resources. Recruit high quality people, whilst retaining and promo(cid:415) ng high performers within the team. • Meet the challenge to deliver a higher quality service, keep up professional development, and set goals that extend its people and beneﬁ t the business. BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 17 STRATEGIC BUSINESS UNIT REPORTS STRATEGIC BUSINESS UNIT REPORTS BSP and PNG Ports Corpora(cid:415) on limited closed the ﬁ nancing of the State’s PGK300 Million investment in the development and expansion of the State’s new Port at Motukea Island. Image Courtesy : PNG Ports Ltd BSP staﬀ are members of various professional groups and the Bank is fully suppor(cid:415) ve of membership and other sponsorships such as conferences or workshops. Busy year in construc(cid:415) on. Including new Sub Branches. This is the Higaturu Sub Branch in the Northern Province. BSP SME Centre, Waterfront Foodworld, Port Moresby. The Smart Business SME product oﬀ erings were well promoted in all major centres and our focus on the SME market segment is unparalleled in PNG. 18 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 19 STRATEGIC BUSINESS UNIT REPORTS STRATEGIC BUSINESS UNIT REPORTS In 2015 PNG celebrated its 40th anniversary of independence. BSP Corporate team promote ‘whole of bank’ solu(cid:415) ons during a forum in Lae, Morobe Province. ATM Support team during the Paciﬁ c Games in Port Moresby. BSP has a Suma(cid:415) n Account for school students. There was increased transac(cid:415) onal ac(cid:415) vity across our extensive network of ATM’s, EFTPoS devices and Mobile Banking. BSP partnered with BPNG to roll out ﬁ nancial literacy training. BSP Leadership Management Development Program par(cid:415) cipants. There was ongoing emphasis on ﬁ nancial inclusion with almost 200,000 banking accounts opened in 2015, of which 40,000 were fee free for children and students, and 60,000 fee free designated savings accounts. HR team receives BSP’s Best Private Sector Employer award. Locals celebrate Kerevat Sub Branch opening in East New Britain. 20 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 21 Fred Osifelo, Manager Point Cruz Branch, BSP Solomon Islands. Pictured here with Rowan Williams, a kid from his community. Corporate Governance 22 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 23 CORPORATE GOVERNANCE CORPORATE GOVERNANCE BSP has adopted an approach to Corporate Governance that is underpinned by our Core Values of Integrity, Leadership, People, Professionalism, Quality, Teamwork and Community. This approach is supported by a comprehensive framework of Corporate Governance principles and policies. The BSP Board has demonstrated its commitment to developing and maintaining a standard of corporate governance that seeks to match global prac(cid:415) ce. The Board ensures that it complies with the requirements of BSP’s home exchange, Port Moresby Stock Exchange (POMSOX). It also closely monitors developments in corporate governance principles and prac(cid:415) ce within Australia and has benchmarked itself against: • • • Directors’ remunera(cid:415) on via the Remunera(cid:415) on & Nomina(cid:415) on Commi(cid:425) ee; selec(cid:415) ng, with the assistance of the Audit, Risk and Compliance Commi(cid:425) ee, and recommending to shareholders, the appointment of external auditors; approving ﬁ nancial statements. A number of these responsibili(cid:415) es have been delegated by the Board to various commi(cid:425) ees. The commi(cid:425) ees and their responsibili(cid:415) es are detailed in Sec(cid:415) on 2, Board Commi(cid:425) ees. • • • ASX Corporate Governance Council ‘Corporate Governance and Best Prac(cid:415) ce Recommenda(cid:415) ons’. Australian Pruden(cid:415) al Regulatory Authority Pruden(cid:415) al Standard APS 510. Standard Australia AS 8000-2003 Good Governance Principles. BSP is mindful of the advantages of demonstra(cid:415) ng to investors that its corporate governance standards meet the requirements expected of companies listed in countries such as Australia. This Corporate Governance Statement therefore compares BSP’s corporate governance prac(cid:415) ces to the ASX Corporate Governance Council and Best Prac(cid:415) ce Recommenda(cid:415) ons. BSP manages in excess of half the banking market in Papua New Guinea, and is predominantly owned by ins(cid:415) tu(cid:415) ons and individuals in Papua New Guinea. The Board, management and staﬀ of BSP are very much aware of their responsibili(cid:415) es to the people of Papua New Guinea. The set of Corporate Governance principles developed by BSP is intended to provide a framework that will help to ensure that BSP deals fairly and openly with all its stakeholders – shareholders, customers and staﬀ alike. BSP publishes its corporate governance prac(cid:415) ces on its website. This is available at www.bsp.com.pg in the shareholders sec(cid:415) on. THE BOARD OF DIRECTORS Role and Responsibility of the Board The roles and responsibili(cid:415) es of the Board are deﬁ ned in the Board Charter. This document also details the ma(cid:425) ers reserved for the Board and ma(cid:425) ers that have been delegated to management. The Board, with the support of its commi(cid:425) ees, is responsible to the shareholders for the overall performance of the company including its strategic direc(cid:415) on; establishing goals for management; and monitoring the achievement of those goals with a view to op(cid:415) mising company performance and increasing shareholder value. • • • • • • • • • • • • overall strategy of the company, including opera(cid:415) ng, ﬁ nancing, dividends, and risk management; appoin(cid:415) ng the Group Chief Execu(cid:415) ve Oﬃ cer and se(cid:427) ng an appropriate remunera(cid:415) on package; appoin(cid:415) ng General Managers and se(cid:427) ng appropriate remunera(cid:415) on packages; appoin(cid:415) ng the Company Secretary and se(cid:427) ng an appropriate remunera(cid:415) on package; endorsing appropriate policy se(cid:427) ngs for management; reviewing Board composi(cid:415) on and performance; reviewing the performance of management; approving an annual strategic plan and an annual budget for the company and monitoring results on a regular basis; ensuring that appropriate risk management systems are in place, and are opera(cid:415) ng to protect the company’s ﬁ nancial posi(cid:415) on and assets; ensuring that the company complies with the law and relevant regula(cid:415) ons, and conforms with the highest standards of ﬁ nancial and ethical behaviour; acquisi(cid:415) ons and disposals material to the business; establishing authority levels; 24 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 The Board has delegated to management responsibility for: • • • • • developing the annual opera(cid:415) ng and capital expenditure budgets for Board approval, and monitoring performance against these budgets; developing and implemen(cid:415) ng strategies within the framework approved by the Board, and providing the Board with recommenda(cid:415) ons on key strategic issues; appoin(cid:415) ng management below the level of General Manager and preparing and maintaining succession plans for these senior roles; developing and maintaining eﬀ ec(cid:415) ve risk management policies and procedures; keeping the Board and the market fully informed of material developments. Membership, Exper(cid:415) se, Size and Composi(cid:415) on of the Board The Corporate Governance Principles aﬃ rm that the majority of the Board should be independent. As is typical of small ﬁ nancial markets generally in Papua New Guinea, there are very considerable demands on the rela(cid:415) vely small numbers of people with the skills and experience to ﬁ ll the demanding role of Non-execu(cid:415) ve Director on the Boards of the Na(cid:415) on’s larger corporate ins(cid:415) tu(cid:415) ons. In these circumstances it is inevitable that a number of the Non - execu(cid:415) ve Directors of BSP will also have roles on the Boards, or in Senior Management, of ins(cid:415) tu(cid:415) ons that may be signiﬁ cant shareholders in, or substan(cid:415) al customers of the Bank. Directors of BSP are me(cid:415) culous in handling situa(cid:415) ons where there could poten(cid:415) ally be conﬂ icts of interest, by declaring their interests in advance, and absen(cid:415) ng themselves from any considera(cid:415) on of ma(cid:425) ers where a conﬂ ict might arise. The Bank’s Corporate Governance Principles require Directors to disclose any new Directorships and equity interests at each Board mee(cid:415) ng. The maximum number of Directors, as prescribed by the Cons(cid:415) tu(cid:415) on approved by shareholders, is ten. At the date of this report there are ten Directors, with nine Non - execu(cid:415) ves designated as independent, plus the Group CEO. Under the Cons(cid:415) tu(cid:415) on, at each annual general mee(cid:415) ng one-third of the company’s Directors, in addi(cid:415) on to any Director appointed during the year, excluding the Group CEO, must oﬀ er themselves for re-elec(cid:415) on by the shareholders. Normally, Non - execu(cid:415) ve Directors are expected to serve a maximum of four three-year terms, da(cid:415) ng from the AGM at which the newly elected Director is ﬁ rst conﬁ rmed by shareholders. This provision has eﬀ ect from the date the Bank took its present form, following the merger of BSP with the Papua New Guinea Banking Corpora(cid:415) on in April 2002. In certain instances it may be considered that a director may bring valuable exper(cid:415) se, independent judgement and an ability to act which may determine that it is in the best interests of the Company for a director to serve beyond a ﬁ xed term. The Board has a broad range of skills, experience and exper(cid:415) se that enables it to meet its objec(cid:415) ves. Details of the Directors’ business backgrounds and experience are provided on pages 8 - 9. The Board accepts that it has a responsibility to shareholders to ensure that it maintains an appropriate mix of skills and experience (without gender bias) within its membership. Consequently the Board gives careful considera(cid:415) on to se(cid:427) ng criteria for new appointments it may recommend to shareholders in accordance with the BSP Cons(cid:415) tu(cid:415) on. It has delegated the ini(cid:415) al screening process involved to its Remunera(cid:415) on and Nomina(cid:415) on Commi(cid:425) ee which, in accordance with its Charter, may seek independent advice on possible new candidates for Directorships. All Directors must be sa(cid:415) sﬁ ed that the best candidate has been selected. Nominees of the Board and/or shareholders must meet the ‘ﬁ t and proper person’ criteria established by the Bank of Papua New Guinea before they can take their place on the Board. The Board does not accept that any oﬃ ce bearer and/or employee of an ins(cid:415) tu(cid:415) onal shareholder, by virtue only of his/her posi(cid:415) on within that organisa(cid:415) on, have an automa(cid:415) c right to be appointed to the Board. On joining the Board, new Directors will be provided with a comprehensive orienta(cid:415) on programme. Role and Selec(cid:415) on of the Chairman The Chairman is elected by the Directors every two years and holds the posi(cid:415) on for a maximum of three terms. His role includes: • • • • • • ensuring all new Board members are fully aware of their du(cid:415) es and responsibili(cid:415) es; providing eﬀ ec(cid:415) ve leadership on the company’s strategy; presen(cid:415) ng the views of the Board to the public; ensuring the Board meets regularly throughout the year, and that minutes are taken and recorded accurately; se(cid:427) ng the agenda of mee(cid:415) ngs and maintaining proper conduct during mee(cid:415) ngs; reviewing the performance of Non-execu(cid:415) ve Directors; BSP Board of Directors The Chairman is not permi(cid:425) ed to occupy the role of Chief Execu(cid:415) ve Oﬃ cer. Sir Kostas Constan(cid:415) nou, OBE, who sits on the Board as an independent Non-execu(cid:415) ve Director, is the current Chairman. Director Independence and Conﬂ ict of Interest The Bank of Papua New Guinea sets pruden(cid:415) al limits on loans to ‘associated persons’: Bank South Paciﬁ c fully complies with these requirements. Related Party Transac(cid:415) ons are summarised in Financial Note 30. Director’s Informa(cid:415) on on page 88 provides details of the Director’s Interests. Mee(cid:415) ngs of the Board and A(cid:425) endance Scheduled mee(cid:415) ngs of the Board are held six (cid:415) mes a year, and the Board meets on other occasions as necessary to deal with ma(cid:425) ers requiring a(cid:425) en(cid:415) on. Mee(cid:415) ngs of Board Commi(cid:425) ees are scheduled regularly during the year. The Board has a policy of rota(cid:415) ng its mee(cid:415) ngs between loca(cid:415) ons where the Group has a signiﬁ cant presence. On these occasions the Board also visits company opera(cid:415) ons and meets with local management and key customers. The Chairman, in consulta(cid:415) on with the Chief Execu(cid:415) ve Oﬃ cer, determines mee(cid:415) ng agendas. Mee(cid:415) ngs provide regular opportuni(cid:415) es for the Board to assess BSP’s management of ﬁ nancial, strategic and major risk areas. To help ensure that all Directors are able to contribute meaningfully, papers are provided to Board members one week in advance of the mee(cid:415) ng. Broad ranging discussion on all agenda items is encouraged, with healthy debate seen as vital to the decision making process. Financial Note 27, Directors’ and Execu(cid:415) ve remunera(cid:415) on, provides a(cid:425) endance details of Directors at Board mee(cid:415) ngs during 2015. Review of Board Performance The Remunera(cid:415) on and Nomina(cid:415) on Commi(cid:425) ee reviews the processes by which the Board regularly assesses its own performance in mee(cid:415) ng its responsibili(cid:415) es. It is intended to extend the assessment of the Board as a whole to include an assessment of the contribu(cid:415) on of each individual Director. The Board is cognisant of the need to con(cid:415) nually iden(cid:415) fy areas for improvement; to ensure that it meets the highest standards of corporate governance; and for the Board and each Director to make an appropriate contribu(cid:415) on to the Group’s objec(cid:415) ve of providing value to all its stakeholders. The performance review is conducted annually, and may involve assistance from external consultants. Directors are determined to be independent if they are judged to be free from any material or other business rela(cid:415) onship with the Bank that would compromise their independence. Board Access to Informa(cid:415) on and Advice Prior to appointment Directors designated are required to provide informa(cid:415) on to the Board for it to assess their independence. All Directors have unrestricted access to company records and informa(cid:415) on and receive regular detailed ﬁ nancial and opera(cid:415) onal reports to enable them to carry out their du(cid:415) es. In assessing the independence of Directors, the Board will consider a number of criteria including: The General Managers make regular presenta(cid:415) ons to the Board on their areas of responsibility. • • • • • • the Director is not an execu(cid:415) ve of the bank; the Director is not a substan(cid:415) al shareholder of the bank or otherwise associated directly with a substan(cid:415) al shareholder of the bank; the Director has not within the last three years been a material consultant or a principal of a material professional adviser to the Bank or a group member, or an employee materially associated with a service provided; the Director is not a material supplier to, or customer of the Bank or other group member, or a material consultant to the Bank or other group member, or an employee materially associated with a material supplier or customer; the Director has no material contractual rela(cid:415) onship with the Bank or other group member other than as a Director of the bank; the Director is free from any interest and any business or other rela(cid:415) onship which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Bank. This informa(cid:415) on is assessed by the Board to determine whether on balance the rela(cid:415) onship could, or could reasonably be perceived to, materially interfere with the exercise of the Director’s responsibili(cid:415) es. Materiality is assessed on a case-by-case basis. As noted earlier, the Board is cognisant of the need to avoid conﬂ icts of interest and it has in place policies and procedures for the repor(cid:415) ng of any ma(cid:425) er, which may give rise to a conﬂ ict between the interests of a Director and those of the Group. These arrangements are designed to ensure that the independence and integrity of the Board are maintained. The Chairman and the other Non-execu(cid:415) ve Directors have the opportunity to meet with the Chief Execu(cid:415) ve Oﬃ cer and the General Managers for further consulta(cid:415) on, and to discuss issues associated with the fulﬁ lment of their roles as Directors. The Board recognises that in certain circumstances individual Directors may need to seek independent professional advice, at the expense of the company, on ma(cid:425) ers arising in the course of their du(cid:415) es. Any advice so received is made available to other Directors. Any Director seeking such advice is required to give prior no(cid:415) ce to the Chairman of his or her inten(cid:415) on to seek independent professional advice. BOARD COMMITTEES Board Commi(cid:425) ees and Membership The Board has established two commi(cid:425) ees whose func(cid:415) ons and powers are governed by their respec(cid:415) ve charters. These commi(cid:425) ees are the Board Audit Risk and Compliance Commi(cid:425) ee (BARCC), and the Remunera(cid:415) on and Nomina(cid:415) on Commi(cid:425) ee. Membership of the commi(cid:425) ees and a record of a(cid:425) endance at commi(cid:425) ee mee(cid:415) ngs during the year is detailed in table below. Remunera(cid:415) on details are provided in Financial Note 27. BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 25 CORPORATE GOVERNANCE CORPORATE GOVERNANCE Membership of Board Commi(cid:425) ees as at 31/12/2015: --------------------------------------------------------------------------------------------------------- In the course of fulﬁ lling its mandate, the commi(cid:425) ee meets with both the internal and external auditors without management present. Board Audit Risk & Compliance Commi(cid:425) ee Remunera(cid:415) on & Nomina(cid:415) on Commi(cid:425) ee Annual Financial Statements --------------------------------------------------------------------------------------------------------- 6/6 Chair Geoﬀ Robb 4/6 Sir Nagora Bogan, KBE 2/2 Gerea Aopi Arthur Sam1 6/6 Freda Talao2 2/2 Sir Kostas Constan(cid:415) nou, OBE 2/2* 2/2* Tom Fox 2/2* Ila Temu 6/6 Ernest Gangloﬀ Augus(cid:415) ne Mano 0/0 --------------------------------------------------------------------------------------------------------- 4/4 Chair 4/4 4/4 4/4 1 Arthur Sam is a non-execu(cid:415) ve, non-director, appointed by the board for board development purposes. 2Freda Talao a(cid:425) ends as an observer director. *Board members who a(cid:425) end the BARCC mee(cid:415) ng to discuss the year end and half year accounts. Commi(cid:425) ee Charters The Commi(cid:425) ee Charters are available in the shareholders informa(cid:415) on sec(cid:415) on of the BSP website www.bsp.com.pg. The BARCC reviews the annual ﬁ nancial statements to determine whether they are complete and consistent with the informa(cid:415) on known to commi(cid:425) ee members and to assess whether the ﬁ nancial statements reﬂ ect appropriate accoun(cid:415) ng principles. In par(cid:415) cular it: • • pays a(cid:425) en(cid:415) on to complex and/or unusual transac(cid:415) ons; focuses on judgmental areas, for example those involving valua(cid:415) on of assets and liabili(cid:415) es; provisions; li(cid:415) ga(cid:415) on reserves; and other commitments and con(cid:415) ngencies; • meets with management and the external auditors to review the ﬁ nancial statements and the results of the audit; • • reviews the other sec(cid:415) ons of the Annual Report before its release and considers whether the informa(cid:415) on is understandable and consistent with members’ knowledge about the bank and its opera(cid:415) ons; sa(cid:415) sﬁ es itself as to the accuracy of the ﬁ nancial accounts, reconciles them with management accounts presented to the commi(cid:425) ee, and signs oﬀ on the ﬁ nancial accounts of the bank before they are submi(cid:425) ed to the Board. Commi(cid:425) ee Structure External Audit Commi(cid:425) ee members are chosen for the skills, experience and other quali(cid:415) es they bring to the commi(cid:425) ee. At the next Board mee(cid:415) ng following each commi(cid:425) ee mee(cid:415) ng, the Board is given a report by the Chairman of the respec(cid:415) ve commi(cid:425) ee and minutes of the mee(cid:415) ng are tabled. The BARCC is responsible for making recommenda(cid:415) ons to the Board on appointment and terms of engagement of BSP external auditors. The selec(cid:415) on is made from appropriately qualiﬁ ed companies in accordance with Board policy. The BARCC is comprised of three Non - execu(cid:415) ve Directors, a majority of whom should be independent, and who are duly appointed by the Board. The Chairman of the BARCC must be one of the independent Directors, other than the Chairman of the Board. Each member should be capable of making a valuable contribu(cid:415) on to the commi(cid:425) ee and membership is reviewed annually by the BSP Board. The Remunera(cid:415) on and Nomina(cid:415) on Commi(cid:425) ee comprises three Non-execu(cid:415) ve Directors, the majority of whom should be independent, and who are duly appointed by the Board. The Chairman of the Remunera(cid:415) on and Nomina(cid:415) on Commi(cid:425) ee must be one of the independent Directors, other than the Chairman of the Board. Each member should be capable of making a valuable contribu(cid:415) on to the commi(cid:425) ee, and membership is reviewed annually by the BSP Board. A review of the performance of commi(cid:425) ee members will form part of the Board’s performance review. Board Audit Risk & Compliance Commi(cid:425) ee The BARCC is delegated by the Board with responsibility for reviewing and monitoring the: • integrity of the ﬁ nancial statements and the ﬁ nancial repor(cid:415) ng and audit process; external auditor’s qualiﬁ ca(cid:415) ons, performance and independence; performance of the internal audit func(cid:415) on of the bank; performance of the opera(cid:415) onal risk func(cid:415) on of the bank; systems of internal control and management of all risks; systems for ensuring opera(cid:415) onal eﬃ ciency and cost control; systems for approval and monitoring of expenditure including capital expenditure; processes for monitoring compliance with laws and regula(cid:415) ons (both in Papua New Guinea and overseas); implementa(cid:415) on of Board decisions by management and making recommenda(cid:415) ons to the Board for the appointment of the external auditor; annual internal audit plan and its ongoing review. • • • • • • • • • • The Board submits the name of the recommended appointee to shareholders for ra(cid:415) ﬁ ca(cid:415) on. In line with the policy of the BPNG, the signing partner in the external audit ﬁ rm must be rotated at least every three years. The commi(cid:425) ee reviews annually the performance of the external auditors and makes recommenda(cid:415) ons to the Board regarding the con(cid:415) nua(cid:415) on or otherwise of their appointment, consistent with the BPNG’s Pruden(cid:415) al Standard No. 7/2005 - External Auditors, while ensuring their independence is in line with Board policy. There is a review of the external auditor’s proposed audit scope and approach, to ensure there are no unjus(cid:415) ﬁ ed restric(cid:415) ons. Mee(cid:415) ngs are held separately with the external auditors to discuss any ma(cid:425) ers that the commi(cid:425) ee or the external auditors believe should be discussed privately. The external auditor a(cid:425) ends mee(cid:415) ngs of the BARCC at which the external audit and half yearly review are agenda items. The commi(cid:425) ee ensures that signiﬁ cant ﬁ ndings and recommenda(cid:415) ons made by the external auditors are received and discussed promptly, and that management responds to recommenda(cid:415) ons by the external auditors in a (cid:415) mely manner. The duly appointed external audit ﬁ rm may not be engaged by the Group to provide specialist consultancy services rela(cid:415) ng to ﬁ nancial, strategic and/ or taxa(cid:415) on ma(cid:425) ers. The external auditor is invited to the Annual General Mee(cid:415) ng of shareholders and is available to answer relevant ques(cid:415) ons from shareholders. The BPNG Pruden(cid:415) al Standards provide for a tri-par(cid:415) te mee(cid:415) ng between BPNG, the external auditors, and the Bank, if required. Internal Audit The BARCC approves, on the recommenda(cid:415) on of management, the appointment of Head of Internal Audit. The commi(cid:425) ee meets regularly with Head of Internal Audit. Reviews are undertaken of the scope of the work of the internal audit func(cid:415) on to ensure no unjus(cid:415) ﬁ ed restric(cid:415) ons or limita(cid:415) ons have been placed upon Audit and Risk Departments. The BARCC also reviews the qualiﬁ ca(cid:415) ons of internal audit personnel and endorses the appointment, replacement, reassignment or dismissal of the internal auditors. An independent review by an expert consultant is made regularly as to the eﬀ ec(cid:415) veness of the internal audit and risk func(cid:415) on. These reports are presented to the BARCC, and the Board. The BARCC meets separately with the internal auditors to discuss any ma(cid:425) ers that the commi(cid:425) ee, or the internal auditors, believe should be discussed privately. The Internal Auditor has direct access to the BARCC and to the full Board. The commi(cid:425) ee ensures that signiﬁ cant ﬁ ndings and recommenda(cid:415) ons made by the internal auditors are received and discussed promptly, and that management responds to recommenda(cid:415) ons by the internal auditors on a (cid:415) mely basis. Internal Audit meets with the external auditors half yearly, to review the scope and ﬁ ndings of internal audit’s annual audit plan, and the extent of the external audit plan, having regard to internal audit’s ﬁ ndings. Compliance recruitment procedures are followed; • • • • • • review and make recommenda(cid:415) ons to the Board on the appointment and terms and condi(cid:415) ons of employment to all Senior Execu(cid:415) ve Management posi(cid:415) ons; review and approve all termina(cid:415) on arrangements for such Senior Execu(cid:415) ves; review transac(cid:415) ons between the Group and any of the Directors or relevant Senior Execu(cid:415) ves; review and make recommenda(cid:415) ons to the Board on employee; remunera(cid:415) on and beneﬁ ts policies and prac(cid:415) ces generally; engage external consultants as and when deemed appropriate to benchmark remunera(cid:415) on packages for Execu(cid:415) ves and Senior Management; • review Board performance, tenure, and succession planning. The Board has in place a review process, led by the Chairman, that involves a peer review of performance based on a broad range of criteria. A performance review has been performed every year since 2010. The BARCC reviews the eﬀ ec(cid:415) veness of the systems for monitoring compliance with all legal and regulatory obliga(cid:415) ons and the Cons(cid:415) tu(cid:415) on of BSP. It also reviews the results of management’s inves(cid:415) ga(cid:415) on and follow-up (including disciplinary ac(cid:415) on) of any fraudulent acts, or non-compliance. RISK MANAGEMENT Approach to Risk Management The commi(cid:425) ee obtains regular updates from management and the bank’s legal oﬃ cers regarding compliance ma(cid:425) ers, and sa(cid:415) sﬁ es itself that all regulatory compliance ma(cid:425) ers have been considered in the prepara(cid:415) on of the ﬁ nancial statements. Reviews of the ﬁ ndings of any examina(cid:415) ons by regulatory agencies are undertaken and the Chairman of the BARCC has the right to approach a regulator directly in the event of a pruden(cid:415) al issue arising. Risk Management The Group’s Risk Management ac(cid:415) vi(cid:415) es are aligned to the achievement of the Group’s Objec(cid:415) ves, Goals and Strategy. The Board, in consulta(cid:415) on with the Execu(cid:415) ve Commi(cid:425) ee, determines the Group’s risk appe(cid:415) te and risk tolerance. These benchmarks are used in the risk iden(cid:415) ﬁ ca(cid:415) on, analysis and risk evalua(cid:415) on processes. BSP dis(cid:415) nguishes the following major risks: Credit Risk: The poten(cid:415) al for ﬁ nancial loss where a customer or counter party fails to meet their ﬁ nancial obliga(cid:415) on to the Group. The commi(cid:425) ee’s role in the Bank’s risk management processes are detailed in the next sec(cid:415) on on Risk Management. Market Risk: The poten(cid:415) al ﬁ nancial loss arising from the Group’s ac(cid:415) vi(cid:415) es in ﬁ nancial, including foreign exchange, markets. More detailed commentary on ﬁ nancial risk management is provided in the Notes to the Financial Accounts. Board Remunera(cid:415) on and Nomina(cid:415) on Commi(cid:425) ee The Remunera(cid:415) on and Nomina(cid:415) on Commi(cid:425) ee has been established to assist the Board in fulﬁ lling its oversight responsibili(cid:415) es in respect of Board and Senior Execu(cid:415) ve Management selec(cid:415) on, appointment, review and remunera(cid:415) on. The responsibili(cid:415) es of the Remunera(cid:415) on and Nomina(cid:415) on Commi(cid:425) ee are: • • • • oversee the selec(cid:415) on and appointment of a CEO and recommend an appropriate remunera(cid:415) on and beneﬁ ts package to the full Board; determine and review appropriate remunera(cid:415) on and beneﬁ ts of Directors for recommenda(cid:415) on to the full Board, and subsequently to the shareholders; iden(cid:415) fy and maintain a clear succession plan for the Execu(cid:415) ve Management Team, ensuring an appropriate mix of skills and experience as well as appropriate remunera(cid:415) on and beneﬁ ts packages are in place and reviewed regularly; ensure that the Board itself maintains an appropriate mix of skills and experience necessary to fulﬁ l its responsibili(cid:415) es to shareholders while maintaining a world class Corporate Governance regime; receive and endorse posi(cid:415) ons/(cid:415) tles recommended by the CEO from (cid:415) me to (cid:415) me as applying to designated Senior Execu(cid:415) ve Management posi(cid:415) ons; • review the procedures in place to ensure that all new Senior Execu(cid:415) ve appointees are adequately qualiﬁ ed and experienced, and that proper Liquidity Risk: The risk of failure to adequately meet cash demand in the short term. Interest Risk: Risk to earnings from movement in interest rates. Opera(cid:415) onal Risk: The risk of loss resul(cid:415) ng from inadequate or failed internal processes, people, or from external events, including legal and compliance risk. The Group’s Asset and Liability Commi(cid:425) ee monitors market risk, interest risk, and liquidity risk, and the Credit Commi(cid:425) ee monitors credit risk. Opera(cid:415) onal risk is monitored by the Opera(cid:415) onal Risk Commi(cid:425) ee, including the maintenance of a risk register system that has been implemented across the Group. The Execu(cid:415) ve Commi(cid:425) ee and the Board overview the highest (cid:415) er of risks within these risk registers. The Group’s Risk Management Policy ensures that the Group has in place acceptable limits for the risks iden(cid:415) ﬁ ed by employees. The risk management approach encompasses the following: • • deﬁ ning the types of risks that will be addressed by each func(cid:415) onal or policy area (i.e. credit risk, interest rate risk, liquidity risk, opera(cid:415) onal risk, etc.); ensuring that mechanisms for managing (iden(cid:415) fying, measuring, and controlling) risk are implemented and maintained to provide for organisa(cid:415) on-wide risk management; 26 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 27 CORPORATE GOVERNANCE • • • • • developing informa(cid:415) on systems to provide early warning, or immediate alert, of events or situa(cid:415) ons that may occur, or already exist, that could create one or more types of risk for the Group; crea(cid:415) ng and maintaining risk management tools, including those requested by the Board, such as policies, procedures, risk registers, controls and independent tes(cid:415) ng, personnel management and training, and planning; ins(cid:415) tu(cid:415) ng and reviewing risk measurement techniques that Directors and management may use to establish the Group’s risk tolerance, risk iden(cid:415) ﬁ ca(cid:415) on approaches, risk supervision or controls, and risk monitoring processes; • • • • Addi(cid:415) onally all General Managers provide bi-annual statements a(cid:425) es(cid:415) ng that; they have assessed and documented the risks and internal control procedures in their Strategic Business Unit; they have iden(cid:415) ﬁ ed any changes in business, opera(cid:415) ons and computer systems and the risks that may arise from those changes; the risk management and internal compliance and control systems are appropriate and opera(cid:415) ng eﬃ ciently and eﬀ ec(cid:415) vely; Group, subject to the foregoing insider trading restric(cid:415) ons, during each of the eight weeks following the announcements of half yearly proﬁ t and yearly proﬁ t or the date of issue of a prospectus. Management should discuss proposed share trades with the Chief Execu(cid:415) ve Oﬃ cer in advance, who in turn will keep the Chairman of the Board appraised of management ac(cid:415) vi(cid:415) es. Directors should discuss proposed share trades with the Chairman in advance. In addi(cid:415) on Directors and management must not trade in any other en(cid:415) ty if inside informa(cid:415) on on such en(cid:415) ty comes to the a(cid:425) en(cid:415) on of the Director or management by virtue of holding oﬃ ce as an Oﬃ cer of the Group. any weaknesses in the risk management and internal compliance and control systems have been iden(cid:415) ﬁ ed and remedial ac(cid:415) on taken. MARKET DISCLOSURE developing processes for those areas that represent poten(cid:415) al risks; ETHICAL BEHAVIOUR establishing appropriate management repor(cid:415) ng systems regarding these risks so individual managers are provided with a suﬃ cient level of detail to adequately manage and control the Group’s risk exposures. BSP acknowledges the need for Directors and employees at all levels to observe the highest standards of ethical behaviour when undertaking BSP business. To this end, the Board has adopted: CORPORATE GOVERNANCE Our shareholder communica(cid:415) on policy is built around compliance with disclosure obliga(cid:415) ons and aspiring to be at the forefront of best prac(cid:415) ce in disclosure. Our framework for communica(cid:415) ng with shareholders is to concisely and accurately communicate: • • • • our strategy; how we implement that strategy; and the ﬁ nancial results consequent upon our strategy and its implementa(cid:415) on. The Group uses shareholder forums such as the Annual General Mee(cid:415) ng, and group mee(cid:415) ngs with larger shareholders, within disclosure policies, to communicate ﬁ nancial performance and strategies. REMUNERATION BSP remunera(cid:415) on policy for senior management is comprised of a ﬁ xed component and an at risk component that is a combina(cid:415) on of short term rewards and long term incen(cid:415) ves. The remunera(cid:415) on packages of General Managers and the Chief Execu(cid:415) ve Oﬃ cer are approved by the Remunera(cid:415) on and Nomina(cid:415) on Commi(cid:425) ee, and details are provided by the commi(cid:425) ee to the Board. Fixed remunera(cid:415) on of senior management is reviewed at the (cid:415) me of contract renewal taking into account the nature of the role, the pay posi(cid:415) on rela(cid:415) ve to comparable market pay levels, and individual and business performance. Non-execu(cid:415) ve Directors are remunerated on a ﬁ xed basis within an aggregate Directors’ fee pool approved periodically by shareholders. The shareholders in 2014 approved an increase in the pool to K2.5 million. During 2015 K1.74 million of the pool was u(cid:415) lised (2014: K1.66 million). A table of fees paid to Directors during 2015 is produced on page 68. Non-execu(cid:415) ve Directors are not paid any re(cid:415) rement or superannua(cid:415) on beneﬁ ts, nor do they par(cid:415) cipate in any share op(cid:415) on programmes. The Group’s con(cid:415) nuous disclosure regime is fundamental to the rights of shareholders to receive informa(cid:415) on concerning their securi(cid:415) es. The most important aspect of the Group’s shareholder communica(cid:415) on policy is to comply with the con(cid:415) nuous disclosure regime and to implement best prac(cid:415) ce disclosure policy. Market announcements are posted to BSP’s website immediately a(cid:332) er release to the market. All market announcements made by the bank since its lis(cid:415) ng in August 2003 are currently available on the website. Where BSP provides ﬁ nancial results’ brieﬁ ngs to analysts or media, these brieﬁ ngs are published on the website as soon as possible a(cid:332) er the event. In any event, no material informa(cid:415) on which has not been previously released to the market is covered in such brieﬁ ngs. The material upon which the brieﬁ ng is based (such as slides or presenta(cid:415) ons) is released to the market prior to the brieﬁ ng. The Group’s insider trading rules are important adjuncts to the con(cid:415) nuous disclosure regime in ensuring that shareholders are given fair access to material informa(cid:415) on regarding securi(cid:415) es. BSP seeks to limit the opportunity for insider trading in its own securi(cid:415) es through its con(cid:415) nuous disclosure policies and the dealing rules applying to its employees and Directors. SHAREHOLDER COMMUNICATIONS BSP’s Code of Conduct requires its employees to act with high standards of honesty, integrity, fairness and equity in all aspects of their employment with BSP. With this in mind, BSP commits to dealing fairly, transparently and openly with both current and prospec(cid:415) ve shareholders using available channels and technologies to communicate widely and promptly. BSP commits to facilita(cid:415) ng par(cid:415) cipa(cid:415) on in shareholder mee(cid:415) ngs, and dealing promptly with shareholder enquiries. • • a Code of Conduct for both Directors and members of the Execu(cid:415) ve Management team of the Group and s(cid:415) pulated that each Director, and relevant employees, acknowledge in wri(cid:415) ng having read, understood and agreed to abide by the Code; and a Corporate Mission, Objec(cid:415) ves, and Core Values Statement which establishes principles to guide all employees in the day to day performance of their individual func(cid:415) ons within the Group. To ensure the maintenance of high standards of corporate behaviour on an ongoing basis, the Board further s(cid:415) pulates that senior management periodically undertake an appropriate communica(cid:415) on programme to reinforce both the Code and Core Values Statements. All Directors are encouraged to maintain membership of an appropriate Directors’ Associa(cid:415) on to keep abreast of current trends in Directors’ du(cid:415) es, responsibili(cid:415) es and corporate governance issues. BSP is commi(cid:425) ed to a culture in which it is safe and acceptable for employees, customers and suppliers to raise concerns about poor or unacceptable prac(cid:415) ces, irregulari(cid:415) es, corrup(cid:415) on, fraud and misconduct. The Group has adopted a whistle-blowing policy that is designed to support and encourage staﬀ to report in good faith ma(cid:425) ers such as: • • • • • • • unacceptable prac(cid:415) ces; irregulari(cid:415) es or conduct which is an oﬀ ence or a breach of laws of the countries in which BSP operates in (ac(cid:415) ons and decisions against the laws of relevant countries including non-compliance); corrup(cid:415) on; fraud; • • • misrepresenta(cid:415) on of facts; • • • • misuse of Group assets; • • decisions made and ac(cid:415) ons taken outside established BSP policies & procedures; sexual harassment; abuse of Delegated Authori(cid:415) es; disclosures related to miscarriages of jus(cid:415) ce; health and safety risks, including risks to the public as well as other employees; damage to the environment; other unethical conduct; failure to comply with appropriate professional standards; abuse of power, or use of the Group’s powers and authority for any unauthorised purpose or personal gain; breach of statutory codes of prac(cid:415) ce. Risk Management Roles and Responsibili(cid:415) es The Board accepts responsibility for ensuring it has a clear understanding of the types of risks inherent in the Group’s ac(cid:415) vi(cid:415) es. Therefore responsibility for overall risk management in BSP is vested with the Board. However every employee from Execu(cid:415) ve Management to the newest recruit has a responsibility and a part to play in the process. There is a formal system of ﬁ nancial and opera(cid:415) onal delega(cid:415) ons from the Board to the CEO, and from the CEO to the General Managers. These delega(cid:415) ons reﬂ ect the Group’s risk appe(cid:415) te, and are cascaded down to managers who have skills and experience to exercise them judiciously. The Board deﬁ nes the accountabili(cid:415) es (including delegated approval/ control authori(cid:415) es/limits) and repor(cid:415) ng/monitoring requirements for the risk management process. The severity of risks iden(cid:415) ﬁ ed in the risk iden(cid:415) ﬁ ca(cid:415) on, analysis and evalua(cid:415) on processes, and noted in the SBU Risk Registers, is used to determine the approval/control authori(cid:415) es/limits. The Board reviews these risk limits annually along with an annual review of the Group’s signiﬁ cant risks. The Board has adopted guidelines, with the help of management analysis, covering the maximum loss exposure the Group is able and willing to assume. These guidelines are detailed in the Group’s Risk Policy and Procedures Manual which has been externally reviewed and approved by the Board. The Board has also delegated to the BARCC responsibility for overview of loss control and for overseeing the risk management func(cid:415) on. The BARCC is responsible for providing regular reports and recommenda(cid:415) ons to the Board on the risk management ac(cid:415) vi(cid:415) es of the Group, especially rela(cid:415) ng to risk issues that are outside of the authority of the Group’s Execu(cid:415) ve Commi(cid:425) ee to approve. The Group’s Execu(cid:415) ve Commi(cid:425) ee is responsible for delibera(cid:415) ng on risk management issues which are outside of the delegated authori(cid:415) es/limits of the Credit Commi(cid:425) ee, Asset and Liability Commi(cid:425) ee (ALCO) and General Managers, with escala(cid:415) on of these issues to the BARCC, and the Board itself, in case of need. Management Assurance The Board is provided with regular reports about BSP’s ﬁ nancial condi(cid:415) on and its opera(cid:415) ng performance. Annually, the CEO and the Chief Financial Oﬃ cer cer(cid:415) fy to the Board that: • • • the ﬁ nancial records of the Group have been properly maintained and that they accurately record the true ﬁ nancial posi(cid:415) on of the Group; the ﬁ nancial statements and notes meet all appropriate accoun(cid:415) ng standards; there are sound systems of risk management and control that are opera(cid:415) ng eﬀ ec(cid:415) vely; 28 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 Directors and management of the Group are subject to Securi(cid:415) es Act 1997 restric(cid:415) ons for buying, selling or subscribing for securi(cid:415) es in the Group if they are in possession of inside informa(cid:415) on, i.e. informa(cid:415) on which is not generally available and, if it were generally available, a reasonable person would expect to have a material eﬀ ect on the price or value of the securi(cid:415) es of the Group. Further, Directors and management may only trade in the securi(cid:415) es of the BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 29 HISTORICAL SUMMARY CONTRIBUTIONS BY BSP TO PNG All Amounts are expressed in K'000 2011 2012 2013 2014 2015 Company income taxes paid to PNG Government Other taxes paid to PNG Government (IWT,FCWT,BWT) GST paid and not able to be recouped Dividends Paid Payments to PNG Based Suppliers/Creditors Payments to PNG Training Ins(cid:415) tu(cid:415) ons Superannua(cid:415) on Payments 119,590 10,091 10,703 223,526 240,402 2,133 5,176 212,081 6,204 12,836 258,975 489,754 8,076 5,873 155,391 4,989 14,082 271,686 440,331 6,076 6,509 188,627 2,568 11,024 309,141 314,699 3,787 6,475 249,210 3,701 16,793 367,239 229,985 4,231 6,955 Salaries, bonuses and allowances paid 144,808 166,064 174,349 162,735 154,943 Commercial Rental Payments Residen(cid:415) al Rental Payments Water Power Telecommunica(cid:415) on Dona(cid:415) ons and Sponsorships Total 13,094 10,396 144 5,544 8,507 3,879 12,621 33,445 693 8,771 13,498 4,192 12,637 36,219 1,069 10,517 17,016 9,267 16,159 28,294 721 8,539 15,243 9,358 13,743 25,822 1,208 9,403 14,993 8,218 797,993 1,233,083 1,160,138 1,077,370 1,106,444 Proﬁ t and Loss (K’000) Net interest income Non interest income Bad and doub(cid:414) ul debt (expense)/recovery 2011 597,479 584,867 (25,234) 2012 681,554 671,870 (70,952) 2013 740,857 781,217 (78,573) 2014 884,761 603,737 (76,796) 2015 1,006,251 539,290 (89,905) Other opera(cid:415) ng expenses (688,621) (748,346) (833,849) (703,085) (691,084) Opera(cid:415) ng Proﬁ t 468,491 534,126 Impairment of non-current asset Share of proﬁ ts from associates Proﬁ t before tax Income tax (expense) Proﬁ t/(loss) a(cid:332) er tax Dividends (toea) Dividends paid per share 1 Balance Sheet (K’000) Net loans and advances Total assets Deposits Capital Performance Ra(cid:415) os Return on Assets Return on Equity Expense/Income Key Pruden(cid:415) al Ra(cid:415) os Capital adequacy Liquid Asset Ra(cid:415) o Leverage ra(cid:415) o Exchange rates (One (1) PNG Kina buys): US Dollar AUS Dollar - 6,496 474,986 - 11,170 545,296 609,652 (14,967) 12,270 606,955 708,617 764,552 - 10,233 718,850 - 1,598 766,150 (119,039) (137,552) (170,127) (211,511) (234,271) 355,947 407,744 436,828 507,339 531,879 47.3 55.0 58.0 66.0 79.0 4,300,913 4,804,626 5,306,362 6,756,997 8,621,514 11,681,293 13,333,102 15,761,420 15,816,507 18,196,303 9,366,281 10,860,522 12,200,999 12,708,383 14,595,374 1,344,188 1,465,893 1,619,060 1,800,193 2,029,176 3.3% 28.7% 58.2% 24.2% 43.6% 10.0% 0.4665 0.4591 3.3% 29.0% 55.3% 22.3% 38.9% 9.0% 0.4755 0.458 2.8% 28.3% 54.8% 18.0% 41.8% 7.6% 0.3905 0.4369 3.2% 29.7% 47.2% 24.0% 34.3% 9.0% 0.3855 0.4708 2.9% 27.8% 44.7% 23.1% 31.5% 8.9% 0.3325 0.4552 Dividends per share has been adjusted for 10/1 share consolida(cid:415) on in 2011. In 2011, BSP paid a full and ﬁ nal dividend for the 2010 year in June, and an interim dividend for 2011 year, in October. In 2012, BSP paid a ﬁ nal dividend for the 2011 year in June, and an interim dividend for 2012 year in October. In 2013, BSP paid a ﬁ nal dividend for the 2012 year in June, and an interim dividend for 2013 year in October. In 2014, BSP paid a ﬁ nal dividend for the 2013 year in June, and an interim dividend for 2014 year in October. In 2015, BSP paid a ﬁ nal dividend for the 2014 year in June, and an interim dividend for 2015 year in October. 30 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 31 Flag raising ceremony, Downtown Port Moresby. BSP staﬀ throughout PNG celebrated Independence Day on September 16th, 2015. The country turned 40. Teretahi(cid:415) Isaaka, Customer Service Representa(cid:415) ve, BSP Cook Islands. She is pictured here with her niece Ngaoa Boaza. Overseas Branches & Subsidiaries 32 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 33 • Nine staﬀ trained as trainers for the rollout of the new Financial Literacy Course. This course will be rolled out to the people of the Solomon Islands in 2016 training and coaching, from both internal and external sources. This has culminated in improved produc(cid:415) vity across our business as seen in the annualised revenue per employee having risen by 12%. OVERSEAS BRANCHES & SUBSIDIARIES FIJI The ﬁ nal GDP growth rate for 2015 is expected to be above 4%. This now shows six consecu(cid:415) ve years of posi(cid:415) ve economic growth. The 2015 growth is expected to be broad based led by transport and storage, ﬁ nancial and insurance ac(cid:415) vi(cid:415) es, tourism, wholesale and retail trade and construc(cid:415) on. Investment and consump(cid:415) on indicators remain strong. Inﬂ a(cid:415) on remains low at 1.8%. With the recent reduc(cid:415) on in VAT from 15% to 9%, it is expected inﬂ a(cid:415) on will reduce further. Foreign reserves remain comfortable at F$1.95 billion and 5.9 months import cover. Monetary condi(cid:415) ons remained accommoda(cid:415) ve with system liquidity hovering around F$500 million. Credit growth grew by 13%. This was led by an increase in consump(cid:415) on lending and also an increase in lending for investment purposes. Financial results for 2015 showed a net proﬁ t a(cid:332) er tax of $31 million compared to the 2013 result of $20.6 million. This is an increase of just over 50%. The Corporate area performed strongly with por(cid:414) olio growth of 22% in a highly compe(cid:415) (cid:415) ve marketplace. A(cid:332) er a challenging start to the year in the foreign exchange market with new entrants to the market pricing very aggressively, we were able to achieve a growth of 26% above 2014. The Retail bank con(cid:415) nued to perform strongly with substan(cid:415) al growth in personal loans, car loan and housing loans. Revenues from our electronic channels – ATM’s, EFTPoS, SMS and Internet Banking con(cid:415) nue to grow and provide our clients with convenience and world class op(cid:415) ons for their banking. One of our most pleasing achievements was the successful implementa(cid:415) on of Project BEST, our core banking system upgrade. This project was delivered on September 7th. The project was delivered ahead of (cid:415) me and below budget. Our customers are remarking on the signiﬁ cant changes in customer experience. SOLOMON ISLANDS 2015 has certainly been a year of excitement and change for BSP Solomon Islands. Early 2015 brought the news that BSP was acquiring the Westpac opera(cid:415) ons in the Solomon Islands along with the banking businesses in Vanuatu, Cook Islands, Tonga, and Samoa. With BSP already opera(cid:415) ng in the Solomon Islands, the acquisi(cid:415) on presents some unique challenges for all staﬀ concerned. One of these challenges will involve the integra(cid:415) on of two banking systems and related opera(cid:415) onal procedures, including the merging of back oﬃ ce processes, as quickly as possible in the post-acquisi(cid:415) on period. The much an(cid:415) cipated se(cid:425) lement occurred on October 30th, 2015. The conversion of the appearance and physical branding of the branch from Red to BSP Green was completed over that weekend and all staﬀ involved are to be commended for their eﬀ orts. The transac(cid:415) on went rela(cid:415) vely smoothly and was preceded by various planning ac(cid:415) vi(cid:415) es involving both BSP and Westpac staﬀ to ensure a joint eﬀ ort in the transi(cid:415) on of products and services for customers. 2015 has been a very good ﬁ nancial year for BSP Solomon Islands with a NPAT of SBD$43.2 million which is up 29% on 2014. The result also takes into account approximately SBD$8 million of costs related to the acquisi(cid:415) on of the Westpac branch. Major growth areas of 2015 have been in the Loan por(cid:414) olio (75%% up on 2014 including SBD$308 million acquired from Westpac) and Foreign Exchange income (55% up on 2014). Excluding Westpac acquisi(cid:415) on costs, expenses for 2015 were generally in line with prior year. All of these combined together has resulted in an excellent year for BSP Solomon Islands Mobile Banking and Financial Inclusion remains a great focus for BSP Solomon Islands. During 2015 the following was achieved: Agencies have increased from 31 to 67. Con(cid:415) nued improvement of • the Telecommunica(cid:415) ons GPRS signal will enable us to increase this number further. Financial Literacy has now been delivered to over 23,000 par(cid:415) cipants • 34 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 2015 has seen, for the ﬁ rst (cid:415) me, two Solomon Island staﬀ placed on BSP Leadership Development Programme and also we introduced our own Development Programme for two junior staﬀ , which will see them fast tracked through all areas of banking and into senior roles. Our staﬀ are the future of BSP Solomon Islands and we must con(cid:415) nue to develop their skills. While oﬃ cial reports on the Solomon Islands Economy shows growth of 2.9%, the business community remains very buoyant and it is expected BSP Solomon Islands will con(cid:415) nue to grow in 2016. All staﬀ are to be congratulated on a very successful 2015. COOK ISLANDS 2015 has been challenging but rewarding year for BSP in the Cook Islands. Contrary to the scep(cid:415) cism of the local community the transi(cid:415) on from Westpac in July 2015 was an outstanding success. The public and our customers have warmed to the BSP brand which is indica(cid:415) ve of the hard work put in by staﬀ prior to and post transi(cid:415) on. The results are pleasing and all staﬀ are commended for their eﬀ orts. Central to the success of the transi(cid:415) on was our ac(cid:415) ve community engagement and local branding showcasing our commitment to the Cook Islands. In November of 2015 we commissioned over 100 professional photographs featuring our long serving local staﬀ and loyal businesses in iconic Cook Islands loca(cid:415) ons. The best 25 photographs were turned into canvases which were launched at our annual client Christmas func(cid:415) on and now adorn the walls of our branch in Rarotonga. The local photos will be used in our branding, adver(cid:415) sing and marke(cid:415) ng ini(cid:415) a(cid:415) ves into the future which will be well received by our local community. BSP Cook Islands has achieved NPAT of NZD0.997 million in the period of opera(cid:415) ons under BSP ownership. The balance sheet has grown 5.7%, with loans increasing to NZD87.5 million and deposits increasing to NZD100.8 million. The ﬁ nancial results reﬂ ect a successful transi(cid:415) on, with the customer base intact, minimal disrup(cid:415) ons to channel ac(cid:415) vi(cid:415) es and customer services, (cid:415) mely rebranding, and systems and communica(cid:415) ons capabili(cid:415) es maintained throughout. SAMOA The 2015 ﬁ nancial period has delivered a strong ﬁ nancial performance, since the BSP acquired the Westpac Bank Corpora(cid:415) on and other Minority shareholdings in Westpac Bank Samoa Limited. This performance has been achieved against a ﬂ at but stable local economic environment, that has seen BSP Samoa perform above system growth in its key revenue sectors. Pleasingly the Bank has also con(cid:415) nued to strengthen its Balance Sheet through a prudent growth strategy whilst at the same (cid:415) me managing stressed assets. Financial Results showed NPAT of WST4.3 million for the period since acquisi(cid:415) on, largely driven by strong Balance Sheet opera(cid:415) onal performance as evidenced by increased income levels and signiﬁ cant reduc(cid:415) on in total expenditure. Both the corporate commercial and consumer areas performed strongly, with por(cid:414) olio growth above system performance. Despite a highly compe(cid:415) (cid:415) ve marketplace, loans increased by 10% over the period. This has been done whilst the Bank has maintained its focus on credit quality and customer reten(cid:415) on following transi(cid:415) oning from Westpac Bank Corpora(cid:415) on. Customer growth has con(cid:415) nued during the period with the Bank now having over 40,000 clients. We have con(cid:415) nued our focus on making banking easier for customers which has seen us expand our Agents to 23 na(cid:415) onwide, with good growth experienced in the number of transac(cid:415) ons conducted via this channel. Our emphasis this year for our people has been development through Our BSP Scholarships to support children from disadvantaged backgrounds remains one of our key community ini(cid:415) a(cid:415) ves, with this year BSP sponsoring 40 school children throughout the year. Addi(cid:415) onally for the 6th year in a row we have supported the women of Samoa by covering the educa(cid:415) onal costs of 10 Samoan women in secondary school. The economic outlook for the year ahead is expected to remain stable with a moderate upli(cid:332) in the tourism and agricultural sectors. The business is well placed with good forward momentum across its key areas and is underpinned by a disciplined approach to how we manage the business. Our balance sheet is strong and we have an energe(cid:415) c and commi(cid:425) ed staﬀ . We will con(cid:415) nue to build a high performing culture and subsequently look to embed the core BSP values in all our ac(cid:415) ons. OVERSEAS BRANCHES & SUBSIDIARIES BSP CAPITAL LIMITED Our results for 2015 were mixed compared to 2014. Global markets and vola(cid:415) lity contributed to nega(cid:415) ve investor sen(cid:415) ment and tough market condi(cid:415) ons throughout most of 2015. Nevertheless we saw modest growth in our Funds Management business; we remain the largest broker by market share and ﬁ nally we have par(cid:415) cipated in several Corporate Advisory transac(cid:415) ons at a (cid:415) me when compe(cid:415) (cid:415) on is intense and client and investor ac(cid:415) vity is subdued. We con(cid:415) nue to provide an integrated solu(cid:415) on to clients alongside our BSP colleagues in Corporate and Retail Banking, Paramount and Treasury. Fund Management • Our total Funds Under Management (FUM) grew by 10.5% to K1.315 billion as at end December 2015. This growth is very pleasing in that we have had steady growth now for 3 years from quite modest levels of below K400m (FUM) as at end December 2012. The Bank has a long and proud history of being ac(cid:415) ve in the community, with a par(cid:415) cular focus on health, educa(cid:415) on and environmental ini(cid:415) a(cid:415) ves. • Of par(cid:415) cular signiﬁ cance is the growth of our retail Funds Under Management by 38% within the overall business during the year. All of our employees are to be commended for their ongoing dedica(cid:415) on and commitment to our business despite the challenges of transi(cid:415) on from Westpac Bank to BSP. Our customers and shareholders also deserve special men(cid:415) on for their con(cid:415) nuous support and loyalty. We look forward to a successful 2016. TONGA It has been a very exci(cid:415) ng and successful year for BSP Tonga. On July 10th 2015 the sale of Westpac to BSP took place and our branches in Tongatapu and Vava’u were transformed over the weekend and BSP Tonga was born. Overall the transi(cid:415) on went smoothly, with some minor teething issues in rela(cid:415) on to overseas payments, which were quickly resolved, working together with the PNG team. BSP has been very well received by customers and staﬀ alike. The oﬃ cial opening of BSP Tonga took place on July 27th 2015 with the ribbon cut by their Royal Highnesses Crown Prince ‘Ulukalala Tupouto’a and Princess Sinaitakala Tuku’aho. BSP CEO Robin Fleming also oﬃ ciated at the ceremony. Since the transi(cid:415) on to BSP, the business has achieved some key achievements: • • • • • • Customer number increased by 12%. Over 1,000 people par(cid:415) cipated in our ﬁ nancial literacy program. Go Green School Clean Up at 10 schools. Loan book growth of 5%. BSP’s icare training rolled out to all staﬀ . Instant card facility introduced. A proﬁ t of TOP2.9 million has been achieved in the period since the acquisi(cid:415) on by BSP. Loans have increased to TOP104.5 million, and deposits are at TOP 146.7 million. The bank’s total assets stand at TOP219.9 million. Staﬀ have worked diligently in this ini(cid:415) al period, and are to be commended for their eﬀ orts. Share Broking • Whilst we retained our posi(cid:415) on as the largest broker in PNG, our brokerage volume fell by 30% in 2015 compared to the results of 2014. However it needs to be said that overall volumes in the en(cid:415) re market were down by about 70% year-on year. • We con(cid:415) nue to explore opportuni(cid:415) es to grow this business with con(cid:415) nued investor educa(cid:415) on seminars in PNG as well as our partnership with counterparty brokers in Australia and the USA. Corporate Advisory • 2015 was a subdued year for our Corporate Advisory business in terms of revenue. A number of assignments were put on hold due to tough market condi(cid:415) ons whilst in some cases assignments that had commenced were not completed during the year and were expected to reach conclusion during 2016. • Our work now covers clients and assignments in PNG as well as the South Paciﬁ c. BSP LIFE FIJI The 2015 achievements in both ﬁ nancial and strategic ac(cid:415) ons were pleasing overall but not without challenges. Our strong ﬁ nancial performance recorded in 2014 in our Life business con(cid:415) nued into 2015 with results exceeding targets. The Health business however experienced diﬃ cul(cid:415) es, aﬀ ected by high claims experienced towards the end of the year. Progress was made with our key strategic ini(cid:415) a(cid:415) ves. 2015 saw the on-going execu(cid:415) on of major ini(cid:415) a(cid:415) ves planned for the year including: • • • • The Health func(cid:415) onality of the new system implemented in 2014 underwent a post implementa(cid:415) on review with ﬁ xes fully resolved in 2015. The Life func(cid:415) onali(cid:415) es implementa(cid:415) on is currently underway. Progress is being made towards comple(cid:415) on of business and data migra(cid:415) on requirements. The con(cid:415) nued aggressive quality growth stance on both Life and Health New Business through the Agency and the Broker Channels respec(cid:415) vely and distribu(cid:415) on through the Bank. ‘Bula Secure’ the new Unsecured Personal Loan insurance product launched through the Bank channel, con(cid:415) nues to do well. The successful launch of the Bula Smart product, the ﬁ rst non - underwri(cid:415) ng Life product in Fiji, reached projected sales an(cid:415) cipated in its ﬁ rst year in the market. The focus on business quality and conserva(cid:415) on eﬀ orts which saw strong inforce growth and stable persistency rate. BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 35 OVERSEAS BRANCHES & SUBSIDIARIES OVERSEAS BRANCHES & SUBSIDIARIES • • The con(cid:415) nued progress on the gated community accommoda(cid:415) on project in Suva, ‘The Domain’. The development consists of a 10 - unit townhouse and 5 execu(cid:415) ve homes in a gated community is expected to be completed by end of March 2016. The con(cid:415) nued focus on investments subsidiaries’ performances resul(cid:415) ng in the marked improvements in their performances and values. Signiﬁ cant progresses were also made in developing strategic partners for certain subsidiaries and further investments planned for others. BSP Finance Ltd target market is small to medium enterprises (SMEs) and in certain cases individual borrowers. It oﬀ ers commercial loans, ﬁ nance lease and term deposits at a(cid:425) rac(cid:415) ve interest rates, and fast turnaround, adop(cid:415) ng a prudent approach to risk. It aims to develop its branding through superior customer service, and being very compe(cid:415) (cid:415) ve on this basis against its compe(cid:415) tors. BSP Finance (PNG) Ltd operates two branches: one in Port Moresby and one in Lae. Its marke(cid:415) ng team also covers Mount Hagen, Wabag, Kundiawa, Madang, Mendi, Alotau, Poponde(cid:425) a, Kokopo, Kavieng and Kimbe. We had a very strong 49% growth in Health new business and a 24% growth in Life new business. The focus on conserva(cid:415) on saw the Life inforce por(cid:414) olio increasing by F$6 million to F$63.1 million. The 13th month persistency rate of 75% is at pleasing similar level as last year. In 2015, BSP Finance (PNG) Ltd entered the PNG asset ﬁ nance market and has proven to be a serious compe(cid:415) tor with the leaders of the industry despite a slowdown in market growth consequent to the comple(cid:415) on of PNG LNG. Financial Performance The Insurance Group NPAT for 2015 was FJD$13.3m, 34% above NPAT for 2014. A(cid:332) er adjustment for non-opera(cid:415) ng items NPAT is FJD$13.7 million, ahead of expecta(cid:415) ons. The Life business achieved very strong proﬁ t performance, while the Health business favourable experience for the ﬁ rst half of the year was oﬀ set by high claims towards the end of the year. BSP Finance (Fiji) Ltd operates two branches: one in Suva and another one in Nadi. Its marke(cid:415) ng team also covers Nausori, Navua, Lautoka, Ba, Sigatoka and Tavua. By the end of 2015, BSP Finance (Fiji) Ltd had already achieved a market share of 6.25% announcing its compe(cid:415) (cid:415) ve inten(cid:415) ons to the major players of the sector. Like BSP, in 2015 BSP Finance Ltd contributed to the development of communi(cid:415) es with community project ini(cid:415) a(cid:415) ves for the Saint Christopher’s Home, an orphanage in Fiji and with the Harmony Chris(cid:415) an Academy in Papua New Guinea. In the near future BSP Finance Ltd plans to open in other countries of the South Paciﬁ c where BSP already operates. The business also has inten(cid:415) ons to expand its opera(cid:415) ons in South East Asia. BSP FINANCE LIMITED BSP Finance is the asset ﬁ nance subsidiary of BSP. It owns and operates two subsidiaries in PNG and Fiji respec(cid:415) vely, oﬀ ering commercial loans, ﬁ nance leases and term deposit products predominantly to SME and small commercial businesses in both countries. The establishment of BSP Finance Ltd has enabled BSP to extend its ﬁ nancial and lending ac(cid:415) vi(cid:415) es into broader sectors of the local economy throughout Papua New Guinea and the South Paciﬁ c region. The ﬁ nance company was oﬃ cially launched on 8th October 2014 by the BSP Board Chairman, Sir Kostas Constan(cid:415) nou during a Board mee(cid:415) ng in Fiji. In November 2014 BSP Finance Ltd opened its ﬁ rst branch in Suva, Fiji. This was subsequently followed in December with the opening of its PNG oﬃ ce in Port Moresby. BSP is Papua New Guinea’s leader in innova(cid:415) ve banking and ﬁ nancial solu(cid:415) ons and it uses its current brand to build the BSP Finance Brand. BSP is already well regarded in the Paciﬁ c market and it is keen to build on this posi(cid:415) on to assist all its clients achieve their ﬁ nancial objec(cid:415) ves. ATM’s, EFTPoS, SMS and Internet Banking con(cid:415) nue to grow and provide our clients in Fiji with convenient solu(cid:415) ons. Customers in the Nadi Highlands. 36 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 37 Agents in Solomon Islands have increased from 31 to 67 in 2015. Launching of Dadave Branchless Banking Agent early on in the year. OVERSEAS BRANCHES & SUBSIDIARIES OVERSEAS BRANCHES & SUBSIDIARIES The rebranding of branches, signages, vehicles and staﬀ uniforms was done swi(cid:332) ly following acquisi(cid:415) on - Tonga. Having a bit of fun with the new look BSP Paciﬁ Card - Cook Islands. Proudly modelling their new corporate wear - Samoa. 38 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 Visi(cid:415) ng a local EFTPoS merchant - Tonga. BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 39 Michelle Lemesio, Business Manager, BSP Samoa. She is pictured with her niece Nanise Asora. Consolidated Financial Statements 40 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 41 STATEMENT BY THE DIRECTORS for the Year Ended 31 December 2015 The Directors declare that: (a) (b) in the Directors’ opinion, there are reasonable grounds to believe that the Bank and the Group will be able to pay their debts as and when they become due and payable; and in the Directors’ opinion, the a(cid:425) ached ﬁ nancial statements and notes thereto are in accordance with the PNG Companies Act 1997, including compliance with accoun(cid:415) ng standards and give a true and fair view of the ﬁ nancial posi(cid:415) on and performance of the Bank and the Group. Addi(cid:415) onal Statutory Informa(cid:415) on The results of the Bank and the Group’s opera(cid:415) ons during the ﬁ nancial year have, in the opinion of the Directors, not been materially aﬀ ected by items of an abnormal nature, other than those disclosed in the ﬁ nancial statements. In the opinion of the Directors, no circumstances have arisen that make adherence to the exis(cid:415) ng method of valua(cid:415) on of assets or liabili(cid:415) es of the Bank and the Group misleading or inappropriate. At the date of this report the Directors are not aware of any circumstances that would render the values a(cid:425) ributed to current assets in the ﬁ nancial statements misleading. No con(cid:415) ngent liability other than that disclosed in the notes to the a(cid:425) ached ﬁ nancial statements has become enforceable, or is likely to become enforceable, within a period of twelve months from the date of this report, that will materially aﬀ ect the Bank and the Group in its ability to meet obliga(cid:415) ons as and when they fall due. Dated and signed in accordance with a resolu(cid:415) on of the Directors at Port Moresby this 11th day of March 2016. Sir Kostas Constan(cid:415) nou, OBE Chairman Robin Fleming, CSM Group Chief Execu(cid:415) ve Oﬃ cer/Director DIRECTORS’ REPORT for the Year Ended 31 December 2015 The Directors take pleasure in presen(cid:415) ng the Financial Statements of the Bank of South Paciﬁ c Limited and its subsidiaries (Bank and the Group) for the year ended 31 December 2015. In order to comply with the provision of the Companies Act 1997, the Directors report as follows: Principal Ac(cid:415) vi(cid:415) es The principal ac(cid:415) vity of the Bank of South Paciﬁ c Limited (BSP) is the provision of commercial banking and ﬁ nance services. The Group’s ac(cid:415) vi(cid:415) es also include stock broking, fund management and life business services throughout Papua New Guinea and the Paciﬁ c region. BSP is a Bank listed on the Port Moresby Stock Exchange (POMSoX), incorporated under the Companies Act of Papua New Guinea, and is an authorised Bank under the Banks and Financial Ins(cid:415) tu(cid:415) ons Act of Papua New Guinea. The Bank and the Group are licensed to operate in the Solomon Islands, Fiji Islands, Cook Islands, Samoa and Tonga. The registered oﬃ ce is at Douglas Street, Port Moresby. Review of Opera(cid:415) ons For the year ended 31 December 2015, Group’s proﬁ t a(cid:332) er tax was K531.879 million (2014: K507.339 million). The Bank’s proﬁ t a(cid:332) er tax was K505.749 million (2014: K512.892 million which included a dividend income of K19.221 million received from BSP Life (Fiji) Limited). Dividends Dividend payment totaling K369.810 million was paid in 2015 (2014: K309.141 million). A detailed breakup of this is provided in Note 23. Directors and Oﬃ cers The following were directors of the Bank of South Paciﬁ c Limited at 31 December 2015: Sir K Constan(cid:415) nou, OBE Mr. T E Fox, OBE, BEc Mr. E B Gangloﬀ , CPA, MAICD Mr. A Mano, BEcon, MSc Mr. R Fleming, CSM, MBA, MMGT Dr. I Temu, PhD, MEc Ms. F Talao, LLM, MPHIL, MAICD Sir. N Bogan, KBE, LLB Mr. G Aopi, CBE, MBA Mr. G Robb, OAM, BA, MBA Details of directors’ tenure and directors and execu(cid:415) ves’ remunera(cid:415) on during the year are provided in Note 27 of the Notes to the Consolidated Financial Statements. The CEO Robin Fleming remains the only execu(cid:415) ve director. The company secretary is Mary Johns. Independent Audit Report The ﬁ nancial statements have been audited and should be read in conjunc(cid:415) on with the independent audit report on page 83. Details of amounts paid to the auditors for audit and other services are shown in Note 42 of the Notes to the Financial Statements. Dona(cid:415) ons and Sponsorships Dona(cid:415) ons and sponsorship by the Group during the year amounted to K9,091,256 (2014: K9,357,564). Change in Accoun(cid:415) ng Policies No changes in accoun(cid:415) ng policies signiﬁ cantly impacted the Group during the year. For, and on behalf of, the Directors. Dated and Signed in accordance with a resolu(cid:415) on of the Directors in Port Moresby this 11th day of March 2016. Sir Kostas Constan(cid:415) nou, OBE Chairman Robin Fleming, CSM Group Chief Execu(cid:415) ve Oﬃ cer/Director 42 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 43 STATEMENT OF COMPREHENSIVE INCOME for the Year Ended 31 December 2015 All amounts are expressed in K’000 Interest income Interest expense Net interest income Fee and commission income Other income Net banking opera(cid:415) ng income Net insurance premium income Investment revenue Increase in policy liabili(cid:415) es Policy maintenance & investment expenses Share of proﬁ ts from associates and jointly controlled en(cid:415) (cid:415) es Claims, surrender and maturi(cid:415) es Net insurance opera(cid:415) ng income Net opera(cid:415) ng income Impairment expense Impairment on subsidiary Opera(cid:415) ng expenses Proﬁ t before income tax Income tax expense Net proﬁ t for the year Other comprehensive income Items that may be subsequently reclassiﬁ ed to proﬁ t or loss Transla(cid:415) on of ﬁ nancial informa(cid:415) on of foreign opera(cid:415) ons to presenta(cid:415) on currency Items that will not be reclassiﬁ ed to proﬁ t or loss: Recogni(cid:415) on of deferred tax on asset revalua(cid:415) on reserve Net movement in asset revalua(cid:415) on Other comprehensive income, net of tax Total comprehensive income for the year Earnings per share - basic & diluted (toea) Note 2 2 3 4 Consolidated Bank 2015 1,100,866 (94,615) 1,006,251 310,468 209,175 2014 947,340 (62,579) 884,761 305,031 293,255 2015 2014 1,083,281 947,309 (93,098) (63,640) 990,183 301,232 200,425 883,669 296,773 312,477 1,525,894 1,483,047 1,491,840 1,492,919 94,322 93,405 90,330 69,092 39(b) (34,984) (17,491) 9 39(a) (67,488) 1,598 (65,608) 21,245 (66,076) 10,233 (70,404) 15,684 - - - - - - - - - - - - - - 1,547,139 1,498,731 1,491,840 1,492,919 (89,905) (76,796) - - (86,657) (11,068) (76,796) - (691,084) (703,085) (665,979) (693,671) 766,150 718,850 728,136 722,452 (234,271) (211,511) (222,387) (209,560) 531,879 507,339 505,749 512,892 48,839 (24,354) 31,912 (18,082) 1,301 21,450 71,590 603,469 113.7 (35,762) 44,330 (15,786) 491,553 108.3 4,592 14,304 50,808 (35,762) 44,330 (9,514) 556,557 503,378 108.1 109.5 13 8 5 6 24 24 24 23 STATEMENT OF FINANCIAL POSITION As at 31 December 2015 All amounts are expressed in K’000 Note 2015 2014 2015 2014 Consolidated Bank ASSETS Cash and balances with Central Bank Treasury & Central Bank bills Amounts due from other banks Statutory deposits with Central Banks Other ﬁ nancial assets Loans, advances and other receivables from customers Assets held for sale Property, plant and equipment Assets subject to opera(cid:415) ng lease Investment in associates and joint ventures Investment in subsidiaries Intangible assets Investment proper(cid:415) es Deferred tax assets Other assets Total assets LIABILITIES Amounts due to other banks Customer deposits Subordinated debt securi(cid:415) es Other liabili(cid:415) es Provision for income tax Other provisions Total liabili(cid:415) es SHAREHOLDERS EQUITY Ordinary shares Retained earnings Other reserves Total shareholders’ equity Total equity and liabili(cid:415) es 10 11 12 25 16 13 14 14 14 9 8 7 15 6 17 18 19 20 21 6 22 23 24 24 1,202,466 2,503,109 695,280 1,359,606 2,308,926 8,621,514 35,135 686,325 52,857 117,316 - 110,226 101,019 147,389 255,135 1,355,469 2,183,237 380,653 1,251,582 2,361,649 6,756,997 65,052 662,313 53,783 118,389 - 110,374 70,684 111,677 334,648 1,010,856 2,501,256 572,400 1,341,650 2,074,124 8,181,227 35,135 597,373 52,857 29,447 259,869 99,601 - 159,290 206,558 1,262,306 2,183,237 380,653 1,251,582 2,188,067 6,688,147 65,052 629,682 53,783 38,520 108,635 104,210 - 115,552 285,093 18,196,303 15,816,507 17,121,643 15,354,519 344,346 259,892 344,877 259,879 14,595,374 12,708,383 14,248,296 12,804,555 75,525 969,179 39,005 143,698 75,525 756,548 63,022 152,944 75,525 353,252 36,168 132,535 75,525 257,674 62,738 147,800 16,167,127 14,016,314 15,190,653 13,608,171 374,621 1,399,490 255,065 2,029,176 379,297 1,219,436 201,460 1,800,193 374,621 1,340,000 216,369 379,297 1,183,505 183,546 1,930,990 1,746,348 18,196,303 15,816,507 17,121,643 15,354,519 The a(cid:425) ached notes form an integral part of these consolidated ﬁ nancial statements. The a(cid:425) ached notes form an integral part of these consolidated ﬁ nancial statements. 44 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 45 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY for the Year Ended 31 December 2015 Bank Share capital Reserves Note 381,498 181,446 All amounts are expressed in K’000 Balance as at 1 January 2014 Net proﬁ t 2013 ﬁ nal dividend paid 2014 interim dividend paid Share buyback BSP Life policy reserve Transfer from Asset Revalua(cid:415) on Reserve Other comprehensive income Balance at 31 December 2014 Net proﬁ t 2014 ﬁ nal dividend paid 2015 interim dividend paid Share buyback Transfer from Asset Revalua(cid:415) on Reserve BSP Life policy reserve Other comprehensive income Balance at 31 December 2015 Consolidated Balance as at 1 January 2014 Net proﬁ t 2013 ﬁ nal dividend paid 2014 interim dividend paid BSP Life policy reserve Prior year consolida(cid:415) on adjustment Transfer from Asset Revalua(cid:415) on Reserve Share buyback Other comprehensive income Balance at 31 December 2014 Net proﬁ t 2014 ﬁ nal dividend paid 2015 interim dividend paid Share buyback Transfer from asset revalua(cid:415) on reserve BSP Life policy reserve Other Comprehensive income Balance at 31 December 2015 Retained earnings 991,368 512,892 (215,476) (93,665) - (24,055) 12,441 - 1,183,505 505,749 (262,021) (105,218) - 22,103 (4,118) - Total 1,554,312 512,892 (215,476) (93,665) (2,201) - - (9,514) 1,746,348 505,749 (262,021) (105,218) (4,676) - - 50,808 - - - (2,201) - - - 379,297 - - - (4,676) - - - - - - - 24,055 (12,441) (9,514) 183,546 - - - - (22,103) 4,118 50,808 374,621 216,369 1,340,000 1,930,990 381,498 202,272 1,035,290 - - - - - - (2,201) - 379,297 - - - (4,676) - - - - - - 24,055 3,360 (12,441) - (15,786) 201,460 - - - - (22,103) 4,118 71,590 507,339 (215,476) (93,665) (24,055) (2,438) 12,441 - - 1,219,436 531,879 (263,872) (105,938) - 22,103 (4,118) - 1,619,060 507,339 (215,476) (93,665) - 922 - (2,201) (15,786) 1,800,193 531,879 (263,872) (105,938) (4,676) - - 71,590 374,621 255,065 1,399,490 2,029,176 23 23 23 24 24 23 23 23 24 24 23 23 24 24 24 23 23 23 23 24 24 STATEMENT OF CASH FLOW for the Year Ended 31 December 2015 All amounts are expressed in K’000 Note 2015 2014 2015 2014 Consolidated Bank CASH FLOW FROM OPERATING ACTIVITIES Interest received Fees and other income Interest paid Amounts paid to suppliers and employees 1,095,363 559,043 (73,977) 911,236 816,898 (61,185) 1,077,459 420,288 (76,268) 911,236 638,786 (61,844) (536,708) (662,045) (433,083) (497,431) Opera(cid:415) ng cash ﬂ ow before changes in opera(cid:415) ng assets 28 1,043,721 1,004,904 988,396 990,747 Increase in loans, advances and other receivables from customers (1,983,852) (1,563,291) (1,579,065) (1,555,657) Increase in statutory deposits with the Central Banks Decrease in bills receivable and other assets Increase in customer deposits (Decrease)/increase in bills payable and other liabili(cid:415) es Net cash ﬂ ow from opera(cid:415) ons before income tax Income taxes paid Net cash ﬂ ow from opera(cid:415) ng ac(cid:415) vi(cid:415) es CASH FLOW FROM INVESTING ACTIVITIES Decrease/(increase) in government securi(cid:415) es Expenditure on property, plant & equipment Proceeds from disposal of property, plant & equipment Proceeds from other investments Purchase of controlled en(cid:415) (cid:415) es, net of cash acquired 40 Addi(cid:415) onal funding of subsidiaries Net cash ﬂ ow from inves(cid:415) ng ac(cid:415) vi(cid:415) es CASH FLOW FROM FINANCING ACTIVITIES Share buyback Dividends paid Net cash ﬂ ow from ﬁ nancing ac(cid:415) vi(cid:415) es 23 23 Net Increase/(decrease) in cash and cash equivalents Eﬀ ect of exchange rate movements on cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and Cash Equivalents at the end of the year 28 (108,024) 145,398 1,886,991 180,266 1,164,500 (282,784) 881,716 (384,565) (154,540) 36,088 27,332 - - (185,002) 42,649 (90,068) 65,851 468,351 1,443,741 (123,960) (356,349) (212,870) (569,219) 915,226 (192,269) 13,900 9,895 - - 58,021 886,876 (282,837) 604,039 (533,611) (111,508) 36,088 27,332 176,524 (16,251) (475,685) 746,752 (421,426) (185,002) 41,540 508,329 (121,086) (321,129) (212,556) (533,685) 836,664 (186,162) 14,218 - - (11,706) 653,014 (2,201) (309,141) (311,342) (4,676) (369,810) (374,486) 31,545 45,625 1,476,230 1,553,400 (2,201) (4,676) (309,141) (311,342) (367,239) (371,915) (133,809) (189,302) (192,013) (13,345) 44,601 1,623,384 1,383,080 1,476,230 1,238,379 (10,461) 1,585,554 1,383,080 The a(cid:425) ached notes form an integral part of these consolidated ﬁ nancial statements. The a(cid:425) ached notes form an integral part of these consolidated ﬁ nancial statements. 46 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 1. ACCOUNTING POLICIES The principal accoun(cid:415) ng policies adopted in the prepara(cid:415) on of these consolidated ﬁ nancial statements are set out below. These policies have been consistently applied to all the periods presented unless otherwise stated. The assets and liabili(cid:415) es are presented in order of liquidity on the statement of ﬁ nancial posi(cid:415) on. A. Basis of Presenta(cid:415) on & General Accoun(cid:415) ng Policies The consolidated ﬁ nancial statements of the Bank of South Paciﬁ c Limited (the Bank) and the Group are prepared in accordance with Interna(cid:415) onal Financial Repor(cid:415) ng Standards as issued by the Interna(cid:415) onal Accoun(cid:415) ng Standards Board and interpreta(cid:415) ons of these standards issued by the Interna(cid:415) onal Financial Repor(cid:415) ng Interpreta(cid:415) ons Commi(cid:425) ee. They are prepared on the basis of the historical cost conven(cid:415) on, as modiﬁ ed by the revalua(cid:415) on of certain non-current assets, ﬁ nancial instruments and liabili(cid:415) es. 28 “Investments in associates and joint ventures” (original eﬀ ec(cid:415) ve date of 1 January 2016 now postponed ) in rela(cid:415) on to the sale or contribu(cid:415) on of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transac(cid:415) on involves a business (whether it is housed in a subsidiary or not). A par(cid:415) al gain or loss is recognised when a transac(cid:415) on involves assets that do not cons(cid:415) tute a business, even if these assets are housed in a subsidiary. • Annual improvements 2014 (eﬀ ec(cid:415) ve 1 January 2016) makes minor changes to IFRS 5, IFRS 7, IAS 19, and IAS 34. • Amendments to IAS 1 “Presenta(cid:415) on of Financial Statements” (eﬀ ec(cid:415) ve 1 January 2016) clarify guidance in IAS 1 on materiality and aggrega(cid:415) on, the presenta(cid:415) on of subtotals, the structure of ﬁ nancial statements and the disclosure of accoun(cid:415) ng policies. The amendments form a part of the IASB’s Disclosure Ini(cid:415) a(cid:415) ve, which explores how ﬁ nancial statement disclosures can be improved. Es(cid:415) mates and assump(cid:415) ons have been used to achieve conformity with generally accepted accoun(cid:415) ng principles in the prepara(cid:415) on of these ﬁ nancial statements. These assump(cid:415) ons and es(cid:415) mates aﬀ ect balances of assets and liabili(cid:415) es, con(cid:415) ngent liabili(cid:415) es and commitments at the end of the repor(cid:415) ng period, and amounts of revenues and expenses during the repor(cid:415) ng period. Whilst the es(cid:415) mates are based on management’s best knowledge of current events and condi(cid:415) ons, actual results may ul(cid:415) mately diﬀ er from those es(cid:415) mates. • • The ﬁ nancial statements are presented in Papua New Guinea Kina, expressed in thousands of Kina, as permi(cid:425) ed by Papua New Guinea Accoun(cid:415) ng Standards. model. Standards, amendment and interpreta(cid:415) ons eﬀ ec(cid:415) ve in the year ended 31 December 2015 • IFRS 15 “Revenue from contracts with customers” (eﬀ ec(cid:415) ve 1 January 2018) is a converged standard from the IASB and FASB on revenue recogni(cid:415) on. The standard will improve the ﬁ nancial repor(cid:415) ng of revenue and improve comparability of the top line in ﬁ nancial statements globally. IFRS 9, ‘Financial Instruments” (eﬀ ec(cid:415) ve 1 January 2018) replaces the guidance in IAS 39 with a standard that is less complex and principles based. The new standard addresses the classiﬁ ca(cid:415) on, measurement and derecogni(cid:415) on of ﬁ nancial assets and ﬁ nancial liabili(cid:415) es, relaxes the requirements for hedge accoun(cid:415) ng and introduces an expected credit losses model that replaces the current incurred loss impairment The following new standards and amendments were applicable for the ﬁ rst (cid:415) me during the accoun(cid:415) ng period beginning 1 January 2015: • • Annual improvements 2012 (eﬀ ec(cid:415) ve 1 July 2014) makes minor changes to IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 37 and IAS 39. Annual improvements 2013 (eﬀ ec(cid:415) ve 1 July 2014) makes minor changes to IFRS 1, IFRS 3, IFRS 13 and IAS 40. Other standards, amendments and interpreta(cid:415) ons which were released during the accoun(cid:415) ng period beginning 1 January 2015 are not relevant or material to the Group. Standards, amendments and interpreta(cid:415) ons issued but not yet eﬀ ec(cid:415) ve for the year ended 31 December 2015 or adopted early. The following standards, amendments and interpreta(cid:415) ons to exis(cid:415) ng standards have been published and are mandatory for the en(cid:415) ty’s accoun(cid:415) ng periods beginning on or a(cid:332) er 1 January 2016 or later periods, but the en(cid:415) ty has not early adopted them: IFRS 16, “Leases” (eﬀ ec(cid:415) ve 1 January 2019) replaces the guidance in IAS 17 and will have a signiﬁ cant impact on accoun(cid:415) ng by lessees. The previous dis(cid:415) nc(cid:415) on under IAS 17 between ﬁ nance leases and opera(cid:415) ng leases for lessees has been removed and IFRS 16 will require a lessee to recognise a lease liability represen(cid:415) ng future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. There is an op(cid:415) onal exemp(cid:415) on for certain short-term leases and leases of low- value assets. For lessees who previously entered into opera(cid:415) ng leases, one of the main impacts will be an increase in debt on the balance sheet. B. Consolida(cid:415) on incorporate the assets and The consolidated ﬁ nancial statements liabili(cid:415) es of all controlled en(cid:415) (cid:415) es of the Bank and the Group as at 31 December 2015, and their results for the year then ended. Controlled en(cid:415) (cid:415) es are those over which the Group has the power to govern ﬁ nancial and opera(cid:415) ng policies, generally accompanied by a shareholding that commands the majority of vo(cid:415) ng rights, and are commonly referred to as subsidiaries. Subsidiaries are accounted for at acquisi(cid:415) on under the acquisi(cid:415) on cost method of accoun(cid:415) ng, where: • • Amendment to IFRS 11 “Joint arrangements” on acquisi(cid:415) on of an interest in a joint opera(cid:415) on (eﬀ ec(cid:415) ve 1 January 2016). These amendments provide new guidance on how to account for the acquisi(cid:415) on of an interest in a joint opera(cid:415) on that cons(cid:415) tutes a business. Amendments to IAS 27 “Separate ﬁ nancial statements” on the equity method (eﬀ ec(cid:415) ve 1 January 2016). These amendments allow en(cid:415) (cid:415) es to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate ﬁ nancial statements. • • • • acquisi(cid:415) on cost is measured at fair value of assets transferred, equity issued, liabili(cid:415) es assumed and any directly a(cid:425) ributable costs of the transac(cid:415) on; iden(cid:415) ﬁ able net assets are recorded ini(cid:415) ally at acquisi(cid:415) on, at their fair values; any excess of the acquisi(cid:415) on cost over the relevant share of iden(cid:415) ﬁ able net assets acquired is treated as goodwill, and any deﬁ ciency is recognised directly in the statement of comprehensive income; All intercompany transac(cid:415) ons and balances are eliminated. • Amendments to IFRS 10 “Consolidated ﬁ nancial statements” and IAS C. Investment in Associates and Joint Arrangements Investments in Associates Associates are en(cid:415) (cid:415) es over which the Group has signiﬁ cant, but not controlling inﬂ uence, generally accompanied by a shareholding conferring between 20% - 50% of vo(cid:415) ng rights. Long term insurance contracts These contracts insure human life events (for example death, survival, disability or cri(cid:415) cal illness) over a long dura(cid:415) on. Guaranteed beneﬁ ts paid on occurrence of the speciﬁ ed insurance event are ﬁ xed or linked to the level of bonus declared on the policy. Most of the policies have maturity and surrender beneﬁ ts. In the consolidated ﬁ nancial statements, these investments are accounted for under the equity method. For all these contracts, premiums are recognised as revenue when they become payable by the contract holder. Premiums are shown before deduc(cid:415) on of commission. Interests In Joint Arrangements The Group applies IFRS 11 to all joint ventures. Under IFRS 11 investments in joint arrangements are classiﬁ ed as either joint ventures or joint opera(cid:415) ons depending on the contractual rights and obliga(cid:415) ons of each investor. Joint ventures are accounted for using the equity method in the consolidated ﬁ nancial statements. Under the equity method of accoun(cid:415) ng, interests in joint ventures are ini(cid:415) ally recognised at cost and adjusted therea(cid:332) er to recognise the Group’s share of the post - acquisi(cid:415) on proﬁ ts or losses and movements in other comprehensive income. When the Group’s share of losses in a joint venture equals or exceeds its interests in the en(cid:415) ty (which includes any long - term interests that, in substance, form part of the group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obliga(cid:415) ons or made payments on behalf of the joint ventures. Interests in joint ventures classiﬁ ed as held for sale are accounted for under IFRS 5 Non-current Assets Held for Sale and Discon(cid:415) nued Opera(cid:415) ons. D. Revenue income and expense are recognised Interest income and expense Interest in the statement of comprehensive income on an accrual basis using the eﬀ ec(cid:415) ve yield method. The income arising from the various forms of instalment credit has been determined using the eﬀ ec(cid:415) ve interest method. Interest income includes coupons earned on inscribed stock, accrued discount and premium on Treasury and Central Bank bills. Short term insurance contracts These contracts are the Term Life, Medical and Travel policies sold and underwri(cid:425) en by BSP Health Care (Fiji) Limited. These contracts protect the Group’s customers from the consequences of events such as death, medical emergency or loss on travel. Guaranteed beneﬁ ts paid on occurrence of the speciﬁ ed insurance event are either ﬁ xed or linked to the extent of the economic loss suﬀ ered by the policyholder. There are no maturity or surrender beneﬁ ts. For all these contracts, premiums are recognised as revenue (earned premiums) propor(cid:415) onally over the period of coverage. The por(cid:415) on of premium received on in-force contracts that relates to unexpired risks at the Statement of Financial Posi(cid:415) on date is reported as the unearned premium liability. Premiums are shown before deduc(cid:415) on of commission. include direct and Claims and loss adjustment expenses are charged to income as incurred based on the es(cid:415) mated liability for compensa(cid:415) on owed to contract holders or beneﬁ ciaries. They indirect claims se(cid:425) lement costs and arise from events that have occurred up to the Statement of Financial Posi(cid:415) on date even if they have not yet been reported to the Group. The Group does not discount its liabili(cid:415) es for unpaid claims. Liabili(cid:415) es for unpaid claims are es(cid:415) mated using the input of assessments for individual cases reported to the Group and sta(cid:415) s(cid:415) cal analyses for the claims incurred but not reported, and to es(cid:415) mate the expected ul(cid:415) mate cost of more complex claims that may be aﬀ ected by external factors (such as court decisions). Approximately 90% of the above contracts in the Group’s por(cid:414) olio contain a Discre(cid:415) onary Par(cid:415) cipa(cid:415) on Feature (DPF). This feature en(cid:415) tles the holder to receive, as a supplement to generated beneﬁ ts, addi(cid:415) onal beneﬁ ts in the form of reversionary bonuses. for liability long term The (principally Life Insurance) has been determined in accordance with LPS 1.04 Valua(cid:415) on of Policy Liabili(cid:415) es, issued by the Australian Pruden(cid:415) al Regula(cid:415) on Authority. insurance contracts The policy liability is calculated in a way that allows for the systema(cid:415) c release of planned proﬁ t margins as services are provided to policy owners and the revenues rela(cid:415) ng to those services are received to determine (Margin on Services methodology).Services used proﬁ t recogni(cid:415) on include the cost of expected insurance claims and the alloca(cid:415) on of future bonuses. The liability is generally determined as the present value of all future expected payments, expenses, taxes and proﬁ t margins reduced by the present value of all future expected premiums and take into considera(cid:415) on projected future bonuses. The liabili(cid:415) es are recalculated at each balance date using best es(cid:415) mate assump(cid:415) ons. These assump(cid:415) ons are revisited regularly and adjusted for actual experiences on claims, expense, mortality and investment returns. The policy liability also includes policy owner retained earnings. Insurance policy liabili(cid:415) es are further detailed in Note 39. E. Fee and commission income Fees and commissions are generally recognised on an accrual basis when the service has been provided. All other risk related fees that cons(cid:415) tute cost recovery are taken to income when levied. Loan origina(cid:415) on fees are deferred over the expected term of the ﬁ nancial instrument according to the eﬀ ec(cid:415) ve interest method. The eﬀ ec(cid:415) ve interest method uses the rate that exactly discounts es(cid:415) mated future payments and receipts through the expected life of the instrument or when appropriate, a shorter period to the net carrying amount of the ﬁ nancial asset. F. Borrowing expenses Expenses associated with the borrowing of funds are charged to the statement of comprehensive income in the period in which they are incurred. G. Provision for loan impairment Loans are originated by providing funds directly to the borrower and are recognised when cash is advanced to borrowers. All loans, advances and other receivables from customers are subject to con(cid:415) nuous management review. A speciﬁ c provision for loan impairment is established if there is objec(cid:415) ve evidence that the Bank and the Group will not be able to collect all amounts due under the terms of loans. The amount of the provision approximates the diﬀ erence between the carrying amount and the recoverable amount, which is the current best es(cid:415) mate of the present value of expected future cash ﬂ ows arising from the asset. All bad debts are wri(cid:425) en oﬀ against the speciﬁ c provision for loan impairment in the period in which they are classiﬁ ed as irrecoverable. 48 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 Subsequent recoveries are credited to the provision for loan losses in the statement of comprehensive income. The following basis and method of deprecia(cid:415) on is used: Class of asset Method Rate General provisions for impairment are maintained to cover incurred losses uniden(cid:415) ﬁ ed at balance date in the overall por(cid:414) olio of loans, advances and other receivables from customers. The provisions are determined having regard to the level of risk weighted assets, economic condi(cid:415) ons, the general risk proﬁ le of the credit por(cid:414) olio, past loss experience and a range of other criteria. The amount necessary to bring the provisions to their assessed levels, a(cid:332) er write-oﬀ s, is charged to the statement of comprehensive income. Property (excluding land) Plant and equipment Equipment under opera(cid:415) ng lease Straight line basis 2 - 3% p.a Straight line basis 10 - 25% pa Straight line basis 6 - 20% pa H. Goodwill Goodwill represents the excess of the cost of any acquisi(cid:415) on over the acquirer’s interest in the fair value of the iden(cid:415) ﬁ able assets and liabili(cid:415) es acquired as at the exchange transac(cid:415) on. Goodwill is reported in the statement of ﬁ nancial posi(cid:415) on as an intangible asset. In determining goodwill, management considers various factors including net selling price of the acquired business, exis(cid:415) ng market share, poten(cid:415) al growth opportuni(cid:415) es, and other factors inherent in the acquired business. This assessment is reviewed at each balance date, so that any indica(cid:415) on of impairment with implica(cid:415) ons for the recoverability of goodwill can be tested, and adjustments to the carrying value of goodwill made if necessary. I. Computer systems development costs Costs incurred to develop and enhance the Bank and the Group’s computer systems are capitalised to the extent that beneﬁ ts do not relate solely to revenue that has already been brought to account and will contribute to the future earning capacity of the economic en(cid:415) ty. These costs are amor(cid:415) sed over the es(cid:415) mated economic life of four years using the straight-line method. Costs associated with maintaining computer so(cid:332) ware programs are recognised as an expense when incurred. J. Property, plant and equipment Land and buildings are measured at fair value. Fair value is determined on the basis of regular independent valua(cid:415) on prepared by external valua(cid:415) on experts, based on discounted cash ﬂ ows or capitalisa(cid:415) on of net income (as appropriate). The fair values are recognised in the consolidated ﬁ nancial statements of the consolidated en(cid:415) ty, and are reviewed at the end of each repor(cid:415) ng period to ensure that the carrying value of land and buildings is not materially diﬀ erent from their fair values. Any revalua(cid:415) on increase arising on the revalua(cid:415) on of land and buildings is credited to the asset revalua(cid:415) on reserve, except to the extent that it reverses a revalua(cid:415) on decrease for the same asset previously recognised as an expense in proﬁ t or loss, in which case the increase is credited to the statement of comprehensive income to the extent of the decrease previously charged. A decrease in carrying amount arising on the revalua(cid:415) on of land and buildings is charged as an expense in the statement of comprehensive income to the extent that it exceeds the balance, if any, held in the asset revalua(cid:415) on reserve rela(cid:415) ng to a previous revalua(cid:415) on of that asset. Buildings under construc(cid:415) ons are referred to as work in progress and are accounted for at cost and subsequently reclassiﬁ ed to building (Premises) upon comple(cid:415) on. Deprecia(cid:415) on is provided on property, plant and equipment, including freehold buildings but excluding land. Deprecia(cid:415) on is calculated on a straight line basis so as to write oﬀ the net cost or other revalued amount of each asset over its expected useful life to its es(cid:415) mated residual value. Leasehold improvements are depreciated over the period of the lease or es(cid:415) mated useful life, whichever is the shorter, using the straight line method. The es(cid:415) mated useful life, residual value and deprecia(cid:415) on method is reviewed at the end of each annual repor(cid:415) ng period. Gains or losses on disposals (being the diﬀ erence between the carrying value at the (cid:415) me of sale or disposal and the proceeds received) are taken into account in determining opera(cid:415) ng proﬁ t for the year. Where the carrying value of an asset is greater than its es(cid:415) mated recoverable amount, it is wri(cid:425) en down immediately to its recoverable amount. Repairs and maintenance are taken into account in determining opera(cid:415) ng proﬁ t when the expenditure is incurred. K. Leases Bank is lessee All leases entered into by the Bank and the Group are opera(cid:415) ng leases. Total payments made are charged to the statement of comprehensive income reﬂ ec(cid:415) ng the pa(cid:425) ern of beneﬁ ts derived from the leased assets. Bank is lessor Finance leases are included in Loans, Advances and Other Receivables from Customers and are accounted for under the ﬁ nance method whereby income is taken to account over the life of the lease in propor(cid:415) on to the outstanding investment balance. Assets subject to opera(cid:415) ng leases are separately disclosed in the statement of ﬁ nancial posi(cid:415) on, according to the nature of the asset. These assets are stated at cost or revalued amount less accumulated deprecia(cid:415) on. The assets are depreciated on a straight line basis over the life of the opera(cid:415) ng lease. Lease income is recognised on a straight line basis over the term of the lease. L. Cash and cash equivalents For the purpose of the cash ﬂ ow statement, cash and cash equivalents comprise notes and coins, and balances due to and from other banks with original maturi(cid:415) es of less than three months. M. Financial assets The Group classiﬁ es its ﬁ nancial assets in the following categories: at fair value through proﬁ t or loss, loans and receivables, and available for sale. The classiﬁ ca(cid:415) on depends on the purpose for which the ﬁ nancial assets were acquired. Management determines the classiﬁ ca(cid:415) on of its ﬁ nancial assets at ini(cid:415) al recogni(cid:415) on. a) Financial assets at fair value through proﬁ t or loss Financial assets at fair value through proﬁ t or loss are ﬁ nancial assets held for trading. A ﬁ nancial asset is classiﬁ ed in this category if acquired principally for the purpose of selling in the short term. Deriva(cid:415) ves are also categorised as held for trading unless they are designated as hedges. Assets in this category are classiﬁ ed as current assets if expected to be se(cid:425) led within 12 months, otherwise they are classiﬁ ed as non-current. The Group’s ﬁ nancial assets at fair value through proﬁ t or loss comprise certain equity securi(cid:415) es included under other ﬁ nancial assets in the statement of ﬁ nancial posi(cid:415) on. 50 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 b) Loans and receivables Loans and receivables are non-deriva(cid:415) ve ﬁ nancial assets with ﬁ xed or determinable payments that are not quoted in an ac(cid:415) ve market. They are included in current assets, except for maturi(cid:415) es greater than 12 months a(cid:332) er the end of the repor(cid:415) ng period. These are classiﬁ ed as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ and ‘cash and cash equivalents’ in the statement of ﬁ nancial posi(cid:415) on. c) Held to maturity investments investments to maturity includes non-deriva(cid:415) ve Held ﬁ nancial assets with ﬁ xed or determinable payments and ﬁ xed maturi(cid:415) es that the Group has both the inten(cid:415) on and ability to hold to maturity. Management determines the classiﬁ ca(cid:415) on of investment securi(cid:415) es held to maturity at their ini(cid:415) al recogni(cid:415) on and reassesses the appropriateness of that classiﬁ ca(cid:415) on at the end of each repor(cid:415) ng period. Investment securi(cid:415) es held to maturity are carried at amor(cid:415) sed cost. The Group’s held to maturity investments comprise securi(cid:415) es issued by Governments and Central Banks of respec(cid:415) ve countries (Treasury and Central Bank Bills) and certain debt securi(cid:415) es included under other ﬁ nancial assets in the statement of ﬁ nancial posi(cid:415) on. Recogni(cid:415) on and measurement Regular purchases and sales of ﬁ nancial assets are recognised on the trade- date – the date on which the group commits to purchase or sell the asset. Investments are ini(cid:415) ally recognised at fair value plus transac(cid:415) on costs for all ﬁ nancial assets not carried at fair value through proﬁ t or loss. Financial assets carried at fair value through proﬁ t or loss are ini(cid:415) ally recognised at fair value, and transac(cid:415) on costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash ﬂ ows from the investments have expired or have been transferred and the group has transferred substan(cid:415) ally all risks and rewards of ownership. Available- for-sale ﬁ nancial assets and ﬁ nancial assets at fair value through proﬁ t or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amor(cid:415) sed cost using the eﬀ ec(cid:415) ve interest method. Gains or losses arising from changes in the fair value of the ‘ﬁ nancial assets at fair value through proﬁ t or loss’ category are presented in the income statement within ‘Other banking income’ in the period in which they arise. Dividend income from ﬁ nancial assets at fair value through proﬁ t or loss is recognised in the income statement as part of other income when the group’s right to receive payments is established. Oﬀ se(cid:427) ng ﬁ nancial instruments Financial assets and liabili(cid:415) es are oﬀ set and the net amount reported in the balance sheet when there is a legally enforceable right to oﬀ set the recognised amounts and there is an inten(cid:415) on to se(cid:425) le on a net basis or realise the asset and se(cid:425) le the liability simultaneously. The legally enforceable right must not be con(cid:415) ngent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty. N. Provisions Provisions are recognised when the Company has a present obliga(cid:415) on (legal or construc(cid:415) ve) as a result of a past event, it is probable that the Company will be required to se(cid:425) le the obliga(cid:415) on, and a reliable es(cid:415) mate can be made of the amount of the obliga(cid:415) on. The amount recognised as a provision is the best es(cid:415) mate of the considera(cid:415) on required to se(cid:425) le the present obliga(cid:415) on at repor(cid:415) ng date, taking into account the risks and uncertain(cid:415) es surrounding the obliga(cid:415) on. Where a provision is measured using the cash ﬂ ows es(cid:415) mated to se(cid:425) le the present obliga(cid:415) on, its carrying amount is the present value of those cash ﬂ ows. When some or all of the economic beneﬁ ts required to se(cid:425) le a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 O. Employee beneﬁ ts A liability is required for beneﬁ ts accruing to employees in respect of wages and salaries, annual leave, and long service leave when it is probable that se(cid:425) lement will be required and they are capable of being measured reliably. Liabili(cid:415) es recognised in respect of employee beneﬁ ts expected to be se(cid:425) led within 12 months, are measured at their nominal values using the remunera(cid:415) on rate expected to apply at the (cid:415) me of se(cid:425) lement. Liabili(cid:415) es recognised in respect of employee beneﬁ ts which are not expected to be se(cid:425) led within 12 months are measured as the present value of the es(cid:415) mated future cash ou(cid:414) lows to be made by the consolidated en(cid:415) ty in respect of services provided by employees up to repor(cid:415) ng date. Post - employment beneﬁ ts - deﬁ ned contribu(cid:415) on plans A deﬁ ned contribu(cid:415) on plan is a pension plan under which the Bank and the Group pays ﬁ xed contribu(cid:415) ons into a separate fund, and there is no recourse to the Bank and the Group for employees if the fund has insuﬃ cient assets to pay employee beneﬁ ts rela(cid:415) ng to service up to the balance sheet date. The Bank and the Group pays contribu(cid:415) ons to publicly or privately administered superannua(cid:415) on plans on a mandatory, contractual or voluntary basis in respect of services rendered up to balance sheet date by all staﬀ members other than non-ci(cid:415) zen contract staﬀ for whom there is no legal obliga(cid:415) on to do so. The contribu(cid:415) ons are at the current rate of employees’ gross salary. Once the contribu(cid:415) ons have been paid, the Bank and the Group have no further payment obliga(cid:415) ons for post-employment beneﬁ ts from the date an employee ceases employment with the Bank and the Group. P. Income tax Current Tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable proﬁ t or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substan(cid:415) vely enacted by the repor(cid:415) ng date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax Deferred tax is accounted for using the balance sheet liability method. Temporary diﬀ erences are diﬀ erences between the tax base of an asset or liability and its carrying amount in the statement of ﬁ nancial posi(cid:415) on. The tax base of an asset or liability is the amount a(cid:425) ributed to that asset or liability for tax purposes. In principle, deferred tax liabili(cid:415) es are recognised for all taxable temporary diﬀ erences. Deferred tax assets are recognised to the extent that it is probable that suﬃ cient taxable amounts will be available against which deduc(cid:415) ble temporary diﬀ erences or unused tax losses and tax oﬀ sets can be u(cid:415) lised. However, deferred tax assets and liabili(cid:415) es are not recognised if the temporary diﬀ erences giving rise to them arise from the ini(cid:415) al recogni(cid:415) on of assets and liabili(cid:415) es which aﬀ ects neither taxable income nor accoun(cid:415) ng proﬁ t. Deferred tax assets and liabili(cid:415) es are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or se(cid:425) led, based on tax rates (and tax laws) that have been enacted or substan(cid:415) vely enacted by the repor(cid:415) ng date. The measurement of deferred tax liabili(cid:415) es and assets reﬂ ects the tax consequences that would follow from the manner in which the Bank expects, at the repor(cid:415) ng date, to recover or se(cid:425) le the carrying amount of its assets and liabili(cid:415) es. Deferred tax assets and liabili(cid:415) es are oﬀ set when they relate to income taxes levied by the same taxa(cid:415) on authority and the Bank intends to se(cid:425) le its current tax assets and liabili(cid:415) es on a net basis. BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the statement of comprehensive income, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity. Q. Foreign currency The consolidated ﬁ nancial statements of the Bank are presented in the currency of the primary economic environment in which the en(cid:415) ty operates (its func(cid:415) onal currency). For the purpose of these consolidated ﬁ nancial statements, the results and ﬁ nancial posi(cid:415) on of the Bank are expressed in Papua New Guinea kina, which is the Bank’s func(cid:415) onal and presenta(cid:415) on currency. In preparing the consolidated ﬁ nancial statements, transac(cid:415) ons in currencies other than the en(cid:415) ty’s func(cid:415) onal currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transac(cid:415) ons. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Foreign opera(cid:415) ons On consolida(cid:415) on, the assets and liabili(cid:415) es of the consolidated en(cid:415) ty’s overseas opera(cid:415) ons are translated at exchange rates prevailing at the repor(cid:415) ng date. Income and expense items are translated at the average exchange rates for the period unless exchange rates ﬂ uctuate signiﬁ cantly. Exchange diﬀ erences arising, if any, are recognised in the foreign currency transla(cid:415) on reserve, and recognised in proﬁ t or loss on disposal of the foreign opera(cid:415) on. been adjusted. Y. Compara(cid:415) ves If the recoverable amount of an asset (or cash-genera(cid:415) ng unit) is es(cid:415) mated to be less than its carrying amount, the carrying amount of the asset (cash- genera(cid:415) ng unit) is reduced to its recoverable amount. An impairment loss is recognised in proﬁ t or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revalua(cid:415) on decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-genera(cid:415) ng unit) is increased to the revised es(cid:415) mate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-genera(cid:415) ng unit) in prior years. A reversal of an impairment loss is recognised in proﬁ t or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revalua(cid:415) on increase. T. Non-current assets held for sale Non-current assets (and disposal groups) classiﬁ ed as held for sale are measured, with certain excep(cid:415) ons, at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classiﬁ ed as held for sale if their carrying amount will be recovered principally through a sale transac(cid:415) on rather than through con(cid:415) nuing use. This condi(cid:415) on is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condi(cid:415) on subject only to terms that are usual and customary for such a sale and the sale is highly probable. The sale of the asset (or disposal group) must be expected to be completed within one year from the date of classiﬁ ca(cid:415) on, except in the circumstances where sale is delayed by events or circumstances outside the Company’s control and the Company remains commi(cid:425) ed to a sale. Compara(cid:415) ve ﬁ gures have been adjusted to conform to changes in presenta(cid:415) on in the current year. Z. Cri(cid:415) cal accoun(cid:415) ng es(cid:415) mates and judgments The applica(cid:415) on of the Group’s accoun(cid:415) ng policies requires the use of es(cid:415) mates and assump(cid:415) ons. If diﬀ erent assump(cid:415) ons or es(cid:415) mates were applied, the resul(cid:415) ng values would change, impac(cid:415) ng the net assets and income of the Group. Individually assessed provisions Provisions for impairment of ﬁ nancial assets are raised where there is objec(cid:415) ve evidence of impairment at an individual or collec(cid:415) ve basis, at an amount adequate to cover assessed credit related losses. Credit losses arise primarily from loans, but also from other credit instruments such as bank acceptances, con(cid:415) ngent liabili(cid:415) es, guarantees and other ﬁ nancial instruments. Speciﬁ c provisions Individually assessed provisions are raised where there is objec(cid:415) ve evidence of impairment (where the Group does not expect to receive all of the cash ﬂ ows contractually due). Individually assessed provisions are made against individual risk rated credit facili(cid:415) es other than retail personal loans. The provisions are established based primarily on es(cid:415) mates of the realisable (fair) value of collateral taken and are measured as the diﬀ erence between a ﬁ nancial asset’s carrying amount and the present value of the expected future cash ﬂ ows (excluding future credit losses that have not been incurred), discounted at the ﬁ nancial asset’s original eﬀ ec(cid:415) ve interest rate. Short term balances are not discounted. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 Collec(cid:415) ve assessed provisions All other loans and receivables that do not have speciﬁ cally assessed provision are assessed collec(cid:415) vely for impairment (Collec(cid:415) vely Assessed Provision). The collec(cid:415) vely assessed provision is maintained to reduce the carrying amount of por(cid:414) olios of similar loans and receivables to their es(cid:415) mated recoverable amounts at the Balance Sheet date. The Group has established a risk grading system which groups loan accounts with similar risk characteris(cid:415) cs. A periodic credit review is undertaken by management on a collec(cid:415) ve and individual basis to ascertain whether the risk grades are s(cid:415) ll appropriate in considera(cid:415) on of economic developments, industry speciﬁ c and borrower speciﬁ c circumstances. A provision rate applied for each risk grade segment which takes into account the frequency of default and loss given default rates for the par(cid:415) cular segment. The risk grading and provision rates require a series of es(cid:415) mates and judgments. Changes in these es(cid:415) mates could have a direct impact on the level of provision determined. The amount required to bring the collec(cid:415) ve provision to the level assessed is recognised in the statement of comprehensive income. Individually and collec(cid:415) vely assessed provisions are detailed in Note 13. R. Share capital U. Fiji class shares Share issue costs External costs directly a(cid:425) ributable to the issue of new shares are deducted from equity net of any related income taxes. Fiji Class Shares issued by BSP Conver(cid:415) ble Notes (Fiji) Limited, a subsidiary of the Bank incorporated in Fiji, are classiﬁ ed as equity of the subsidiary. Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are declared. Dividends for the year, declared a(cid:332) er the balance sheet date, are dealt with in the subsequent events note. S. Asset impairment At each repor(cid:415) ng date, the Bank and the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indica(cid:415) on that those assets have suﬀ ered an impairment loss. If any such indica(cid:415) on exists, the recoverable amount of the asset is es(cid:415) mated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash ﬂ ows that are independent from other assets, the Bank and the Group es(cid:415) mates the recoverable amount of the cash- genera(cid:415) ng unit to which the asset belongs. Goodwill, intangible assets with indeﬁ nite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indica(cid:415) on that the asset may be impaired. An impairment of goodwill is not subsequently reversed. Recoverable amount is the higher of fair value less cost of disposal and value in use. In assessing value in use, the es(cid:415) mated future cash ﬂ ows are discounted to their present value using a pre-tax discount rate that reﬂ ects current market assessments of the (cid:415) me value of money and the risks speciﬁ c to the asset for which the es(cid:415) mates of future cash ﬂ ows have not 52 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 V. Deriva(cid:415) ve ﬁ nancial instruments and acceptances Forward foreign exchange contracts entered into for trading purposes are ini(cid:415) ally recognised at cost and subsequently re-measured at fair value based upon the forward rate. Gains and losses on such contracts are taken to the statement of comprehensive income. Acceptances comprise undertakings by the Bank and the Group to pay bills of exchange drawn on customers. The Bank and the Group expects most acceptances to be se(cid:425) led simultaneously with the reimbursement from the customers. Customer acceptances are accounted for as oﬀ -balance sheet transac(cid:415) ons and are disclosed as con(cid:415) ngent liabili(cid:415) es and commitments. The Bank and the Group does not ac(cid:415) vely enter into or trade in complex forms of deriva(cid:415) ve ﬁ nancial instruments such as currency and interest rate swaps and op(cid:415) ons. W. Segment repor(cid:415) ng Segments are reported in a manner consistent with the internal repor(cid:415) ng provided to the Group’s chief opera(cid:415) ng decision maker. X. Earnings per share Earnings per share is determined by dividing the proﬁ t or loss a(cid:425) ributable to owners of the Bank by the weighted average number of par(cid:415) cipa(cid:415) ng shares outstanding during the repor(cid:415) ng year. BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 2. NET INTEREST INCOME All amounts are expressed in K’000 Interest income Cash and balances with Central Bank Treasury bills Central Bank Bills Other ﬁ nancial assets - Inscribed Stock Loans, advances and other receivables from customers Other Less: Interest expense Customer deposits Other banks Subordinated debt securi(cid:415) es Consolidated Bank 2015 2014 2015 2014 All amounts are expressed in K’000 5. OPERATING EXPENSES 9,069 88,366 8,269 210,270 782,619 2,273 1,100,866 73,660 12,647 8,308 94,615 1,006,251 10,867 67,392 18,544 189,229 658,807 2,501 947,340 39,420 14,851 8,308 62,579 884,761 9,954 88,366 8,269 210,270 763,984 2,438 1,083,281 72,650 12,140 8,308 93,098 990,183 10,867 67,392 18,544 189,229 658,776 2,501 947,309 40,481 14,851 8,308 63,640 883,669 Administra(cid:415) on Compu(cid:415) ng Deprecia(cid:415) on Amor(cid:415) sa(cid:415) on of computer development Non-execu(cid:415) ve Directors costs Non-lending losses Fixed asset impairment expenses Premises and equipment Staﬀ costs Deﬁ ned contribu(cid:415) on plans Statutory beneﬁ t contribu(cid:415) ons Wages and salaries Other staﬀ beneﬁ ts 6. INCOME TAX Income tax expense Current tax Deferred tax Current year Income tax under provided Loan origina(cid:415) on fees recognised in the Statement of Comprehensive Income in accordance with the Group’s accoun(cid:415) ng policy detailed in Note 1(e) have now been classiﬁ ed under ‘net interest income’ as required by IFRS. Compara(cid:415) ve ﬁ gures have been adjusted to conform to changes in presenta(cid:415) on in the current year. 3. FEE AND COMMISSION INCOME Fee and commission income Product related Trade and interna(cid:415) onal related Electronic banking related Other Less: Fee and commission expenses Agencies Interna(cid:415) onal Finance Corpora(cid:415) on fees 4. OTHER INCOME Foreign exchange related Opera(cid:415) ng lease rentals Other 186,258 186,356 14,377 87,813 25,483 14,675 84,765 26,876 313,931 312,672 532 2,931 3,463 735 6,906 7,641 184,445 14,373 86,213 19,506 304,537 374 2,931 3,305 186,356 14,675 84,765 18,618 304,414 735 6,906 7,641 310,468 305,031 301,232 296,773 178,943 10,104 20,128 209,175 267,497 10,146 15,612 293,255 170,839 10,104 19,482 200,425 267,497 10,146 34,834 312,477 Foreign Exchange related income includes gains and losses from spot and forward contracts and translated foreign currency assets. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 Consolidated Bank 2015 126,095 48,307 70,007 44,713 2,249 17,496 44,666 62,857 2014 111,893 46,407 76,707 46,116 1,772 25,891 50,397 65,916 2015 108,591 47,307 67,607 44,224 1,713 28,328 44,666 60,656 2014 104,001 46,403 76,707 46,116 1,445 25,056 50,397 65,829 416,390 425,099 403,092 415,954 11,463 (676) 209,189 54,718 274,694 691,084 260,995 (35,712) 225,283 8,988 234,271 10,262 7,577 202,691 57,456 277,986 703,085 247,754 (40,082) 207,672 3,839 211,511 11,079 (784) 199,766 52,826 262,887 665,979 257,544 (43,738) 213,806 8,581 222,387 10,262 7,577 202,691 57,187 277,717 693,671 244,991 (40,092) 204,899 4,661 209,560 Tax calculated at 30% of proﬁ t before tax (2014:30%) 218,441 216,736 218,441 216,736 Tax calculated at respec(cid:415) ve subsidiary tax rates Expenses not deduc(cid:415) ble for tax Tax loss not recognised Deduc(cid:415) ble expenses not recognised for accoun(cid:415) ng purposes Income tax under provided Provision for income tax At 1 January Income tax provision Income tax under/over provided Foreign tax paid Tax payments made At 31 December 6,510 5,175 2,617 (7,460) 8,988 234,271 (63,022) (260,995) 2,228 35,198 247,586 (39,005) 3,355 477 1,347 (14,243) 3,839 211,511 (33,395) (247,754) 5,257 12,130 200,740 (63,022) - 2,825 - (7,460) 8,581 222,387 (62,738) (257,544) 1,277 33,627 249,210 (36,168) - 2,406 - (14,243) 4,661 209,560 (33,222) (244,991) 2,919 11,816 200,740 (62,738) 54 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 6. INCOME TAX (con(cid:415) nued) 7. INTANGIBLE ASSETS All amounts are expressed in K’000 2015 2014 2015 2014 All amounts are expressed in K’000 2015 2014 2015 2014 Consolidated Bank Consolidated Bank Deferred taxes Speciﬁ c allowance for losses on loans, advances and other receivables from customers General allowance for losses on loans, advances and other receivables from customers 32,603 11,173 32,118 11,173 95,541 86,953 92,262 86,953 Employee related provisions Prepaid expenses Other provisions Property, plant and equipment Unrealised foreign exchange gains Accruals At 31 December Represented by: Deferred tax asset Deferred tax liability At 31 December Deferred taxes movement At 1 January Current year movement Revalua(cid:415) on recognised in equity Income tax under/over provided Other movements At 31 December 17,955 (1,396) 14,028 (32,676) (3,626) 24,960 147,389 199,444 (52,055) 147,389 111,677 35,712 4,441 (2,999) (1,442) 147,389 19,350 (1,253) 22,711 (44,469) (908) 18,120 111,677 161,926 (50,249) 111,677 87,002 40,082 (11,048) - (4,359) 111,677 16,378 (1,396) 25,502 (31,240) (3,626) 29,292 159,290 195,553 (36,263) 159,290 115,552 43,738 4,441 (2,999) (1,442) 159,290 19,267 (1,253) 26,191 (43,991) (908) 18,120 115,552 161,703 (46,151) 115,552 88,453 40,092 (11,048) - (1,945) 115,552 7(a) Goodwill At 1 January Net movement Gross carrying amount 7(b) Computer development costs At 1 January Addi(cid:415) ons Disposals Amor(cid:415) sa(cid:415) on expense At 31 December Total intangible assets 8. INVESTMENTS IN SUBSIDIARIES All amounts are expressed in K’000 Name of Subsidiary BSP Capital Limited BSP Life Limited BSP Conver(cid:415) ble Notes Limited BSP Finance Limited Bank of South Paciﬁ c Tonga Ltd Bank South Paciﬁ c (Samoa) Ltd At 31 December 21,271 21,103 42,374 89,103 34,511 (11,049) (44,713) 67,852 110,226 21,271 - 21,271 133,198 20,368 (18,347) (46,116) 89,103 110,374 18,267 17,405 35,672 85,943 33,257 (11,047) (44,224) 63,929 99,601 18,267 - 18,267 133,198 18,788 (19,927) (46,116) 85,943 104,210 Principal ac(cid:415) vity Place of Incorpora(cid:415) on & Opera(cid:415) on Ownership % Share brokerage/Fund Management/ Capital Raising Life Insurance Capital Rising Credit Ins(cid:415) tu(cid:415) on Bank Bank PNG 100% Fiji Fiji PNG Tonga 100% 100% 100% 100% Samoa 98.7% Balance of Investment 2015 2,000 2014 8,959 87,599 87,653 371 27,958 71,610 70,331 317 11,706 - - 259,869 108,635 During the year the Bank acquired two subsidiaries as part of its acquisi(cid:415) on of interests in regional banks (refer to note 40). Provision of impairment of the investment in BSP Capital Limited The directors determined that the investment in BSP Capital Limited had been materially impaired as the carrying amount of the investment was greater than its net book value. As of the repor(cid:415) ng date, the investment amount is wri(cid:425) en down to its net book value. Represented by: All amounts are expressed in K’000 Opening Balance Addi(cid:415) onal capital Provision for Impairment At 31 December 2015 8,959 4,109 (11,068) 2014 8,959 - - 2,000 8,959 56 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 9. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES 11. TREASURY AND CENTRAL BANK BILLS En(cid:415) ty Joint Venture/ Associate Principal ac(cid:415) vity Place of incorpora(cid:415) on and opera(cid:415) on Suva Central Ltd Richmond Ltd Joint Venture Property rental Joint Venture Hotel opera(cid:415) on Williams and Gosling Ltd Associate Freight forwarding Carpark Ltd Malagan Ltd Joint Venture Joint Venture Property Property Fiji Fiji Fiji PNG PNG Propor(cid:415) on of ownership and vo(cid:415) ng power held Consolidated Bank 2015 50%* 2014 50%* 61.3%**,50%*** 61.3%**, 50%*** 27.7%* _ _ 27.7%* 33.33% 33.33% All amounts are expressed in K’000 2015 2014 2015 2014 Treasury and Central Bank bills – face value 2,541,571 2,210,743 2,539,719 2,210,743 Discount for interest receivable At 31 December (38,462) 2,503,109 (27,506) 2,183,237 (38,463) 2,501,256 (27,506) 2,183,237 Treasury and Central Bank bills are debt securi(cid:415) es issued by Central Banks. These bills are classiﬁ ed as assets held for trading and carried at fair value by the Insurance business and assets held to maturity by the Banking businesses. The investments above are accounted for using the equity method in the consolidated ﬁ nancial statements except for Carpark Ltd and Malagan Ltd which are accounted for at cost less impairment. Carpark Ltd and Malagan Ltd interests were disposed of during the year. 12. AMOUNTS DUE FROM OTHER BANKS *Both ownership and vo(cid:415) ng power held, **ownership, ***vo(cid:415) ng power held. All amounts are expressed in K’000 2015 2014 2015 2014 Consolidated Bank Items in the course of collec(cid:415) on Placements with other banks At 31 December 80,076 615,204 695,280 85,803 294,850 380,653 80,077 492,323 572,400 85,803 294,850 380,653 Associates Investment in associate - equity Transla(cid:415) on movement Share of proﬁ t for the year Net investment at 31 December Summarised ﬁ nancial informa(cid:415) on of associate: Total assets Total liabili(cid:415) es Net assets Net proﬁ t Share of associate’s proﬁ t Joint Ventures & Associates Share of associate’s net assets - equity Shares held in jointly owned en(cid:415) ty - at cost less impairment Total investments in associates and joint ventures 10. CASH AND BALANCES WITH CENTRAL BANK Notes, coins and cash at bank Balances with Central Bank other than statutory deposit Total cash and balances with Central Bank 79,718 6,553 1,598 87,869 147,013 (41,380) 105,633 10,341 1,598 87,869 29,447 117,316 72,900 (3,415) 10,233 79,718 180,637 (34,705) 145,932 17,085 10,233 79,718 38,671 118,389 - - - - - - - - - - - - - - - - - - - - 13. LOANS, ADVANCES AND OTHER RECEIVABLES FROM CUSTOMERS Overdra(cid:332) s Lease ﬁ nancing Term loans Mortgages Policy loans Gross loans, advance and other receivables due from customers net of reserved interest Less allowance for losses on loans, advances and other receivables from customers 583,436 792,580 557,746 792,580 245,153 7,059,098 273,194 4,821,727 230,487 6,710,903 273,194 4,792,132 1,137,938 1,157,855 1,110,619 1,157,328 42,761 39,678 - - 9,068,386 7,085,034 8,609,755 7,015,234 (446,872) (328,037) (428,528) (327,087) At 31 December 8,621,514 6,756,997 8,181,227 6,688,147 29,447 29,447 38,520 38,520 The spread of the loans are detailed in the maturity analysis table on Note 34. The loans are diversiﬁ ed across various sectors and are further analysed on Note 33. Lease ﬁ nancing The Group and the bank provide lease ﬁ nancing to a broad range of clients to support ﬁ nancing needs in acquiring movable assets such as motor vehicles and plant and equipment. Finance lease receivables are included within loans, advances and other receivables from customers and are analysed as follows: 468,712 733,754 479,818 875,651 1,202,466 1,355,469 403,269 386,655 607,587 1,010,856 875,651 1,262,306 58 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 13. LOANS, ADVANCES AND OTHER RECEIVABLES FROM CUSTOMERS (cid:904)con(cid:415) nued(cid:905) 14. PROPERTY, PLANT AND EQUIPMENT All amounts are expressed in K’000 2015 2014 2015 2014 All amounts are expressed in K’000 2015 2014 2015 2014 Consolidated Bank Consolidated Bank Gross investment in ﬁ nance lease receivable Not later than 1 year Later than 1 year and not later than 5 years Unearned future ﬁ nance income Not later than 1 year Later than 1 year and not later than 5 years Present value of minimum lease payment receivable Present value of minimum lease payment receivable is analysed as follows: Not later than 1 year Later than 1 year and not later than 5 years At 31 December Provision for impairment Movement in allowance for losses on loans, advances and other receivables from customers: Balance at 1 January Net new and increase provisioning Loans wri(cid:425) en oﬀ against provisions/(Write back of provisions no longer required) 56,733 215,911 272,644 (4,963) (22,528) (27,491) 245,153 51,770 193,383 245,153 20,523 282,168 302,691 (14,291) (15,206) (29,497) 273,194 20,523 252,671 273,194 49,816 201,049 250,865 (1,803) (18,575) (20,378) 230,487 48,013 182,474 230,487 20,523 282,168 302,691 (14,291) (15,206) (29,497) 273,194 20,523 252,671 273,194 328,037 74,410 44,425 277,081 62,096 (11,140) 327,087 71,201 30,240 275,788 62,096 (10,797) At 31 December 446,872 328,037 428,528 327,087 Provision for impairment is represented by: Collec(cid:415) ve provision Individually assessed or speciﬁ c provision At 31 December Loan impairment expense Net collec(cid:415) ve provision funding Net new and increase individually assessed provisioning Total new and increase provisioning Recoveries during the year Net write back/(write oﬀ ) At 31 December 329,641 117,231 446,872 (51,406) (23,004) (74,410) 60,155 (75,650) (89,905) 290,200 37,837 328,037 (50,812) (11,284) (62,096) 33,204 (47,904) (76,796) 321,468 107,060 428,528 (48,656) (22,545) (71,201) 59,713 (75,169) (86,657) 289,845 37,242 327,087 (50,812) (11,284) (62,096) 33,204 (47,904) (76,796) Carrying value Capital work in progress Premises Accumulated deprecia(cid:415) on Equipment Accumulated deprecia(cid:415) on At 31 December Assets held for sale (premises) Net assets at 31 December 158,621 578,832 (109,247) 469,585 281,633 (188,379) 93,254 721,460 (35,135) 686,325 Reconcilia(cid:415) on of carrying value of property, plant & equipment is set out below: Capital work in progress At 1 January Addi(cid:415) ons Transfers At 31 December Premises At 1 January Addi(cid:415) ons Disposals Deprecia(cid:415) on expense Revalua(cid:415) on gains/ (losses) At 31 December Equipment At 1 January Addi(cid:415) ons Disposals Deprecia(cid:415) on expense At 31 December 180,694 127,472 (149,545) 158,621 453,677 77,426 (41,383) (27,535) 7,400 469,585 92,994 50,174 (10,928) (38,986) 93,254 180,694 546,600 (92,923) 453,677 256,832 151,589 527,023 (104,351) 422,672 209,931 176,719 522,769 (85,812) 436,957 221,749 (163,838) (151,684) (140,691) 92,994 727,365 (65,052) 662,313 117,253 172,826 (109,385) 180,694 385,195 90,108 (35,573) (22,882) 36,829 453,677 120,912 29,192 (6,983) (50,127) 92,994 58,247 632,508 (35,135) 597,373 176,719 112,205 (137,335) 151,589 436,957 66,934 (41,383) (26,330) (13,506) 422,672 81,058 21,672 (10,928) (33,555) 58,247 81,058 694,734 (65,052) 629,682 113,744 169,297 (106,322) 176,719 368,091 89,860 (35,573) (22,250) 36,829 436,957 107,788 26,097 (6,092) (46,735) 81,058 60 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 14. PROPERTY, PLANT AND EQUIPMENT (cid:904)con(cid:415) nued(cid:905) 15. INVESTMENT PROPERTIES Consolidated Bank Consolidated Bank 2015 2014 2015 2014 All amounts are expressed in K’000 All amounts are expressed in K’000 Assets subject to opera(cid:415) ng lease Carrying value Aircra(cid:332) Accumulated deprecia(cid:415) on At 31 December Reconcilia(cid:415) on of carrying value of aircra(cid:332) is set out below: Aircra(cid:332) At 1 January Deprecia(cid:415) on Revalua(cid:415) on net increase At 31 December Future minimum lease receipts Not later than 1 year Later than 1 year and not later than 5 years At 31 December 130,122 (77,265) 52,857 123,326 (69,543) 53,783 130,122 (77,265) 52,857 123,326 (69,543) 53,783 53,783 (7,722) 6,796 52,857 10,104 5,219 15,323 61,505 (7,722) - 53,783 10,104 15,323 25,427 53,783 (7,722) 6,796 52,857 10,104 5,219 15,323 25,987 128,935 21,834 176,756 61,505 (7,722) - 53,783 10,104 15,323 25,427 24,301 108,844 26,396 159,541 The carrying amount of land and buildings and aircra(cid:332) had they been recognised under the cost model are as follows: Freehold land Buildings Aircra(cid:332) At 31 December 25,987 132,727 21,834 180,548 24,301 108,844 26,396 159,541 Freehold land and buildings carried at fair value Independent valua(cid:415) ons of the Bank’s land and buildings were performed by Countrywide Realty Limited and The Professional Valuers of PNG Limited to determine the fair value of the land and buildings. The valua(cid:415) ons, which conform to Interna(cid:415) onal Valua(cid:415) on Standards, were determined by reference to capitalisa(cid:415) on of the no(cid:415) onal income stream approach on the Market Value basis. The most recent valua(cid:415) on was dated 31 December 2014. Assets subject to opera(cid:415) ng lease – aircra(cid:332) An independent valua(cid:415) on of the Bank’s aircra(cid:332) s was performed by Ascend Advisors to determine the current realis(cid:415) c fair value for each of the aircra(cid:332) . The valua(cid:415) on, which conforms to Interna(cid:415) onal Valua(cid:415) on Standards, takes into considera(cid:415) on the current global market varia(cid:415) ons for the speciﬁ c types of aircra(cid:332) s. The eﬀ ec(cid:415) ve date of the valua(cid:415) on was 31 March 2014 and was extrapolated to 31 December 2015 based on expected fair values per the aircra(cid:332) lease contracts. Opening net book value Addi(cid:415) ons Transla(cid:415) on movement Gain on revalua(cid:415) on At 31 December 16. OTHER FINANCIAL ASSETS Securi(cid:415) es – held to-maturity: 2015 70,684 10,325 5,736 14,274 101,019 2014 65,429 4,856 (3,053) 3,452 70,684 2015 2014 - - - - - - - - Inscribed stock – issued by Central Bank 2,227,847 2,297,935 2,074,124 2,188,067 Financial assets carried at fair value through proﬁ t and loss: Equity securi(cid:415) es At 31 December 17. OTHER ASSETS Funds in transit and other assets Accrued interest income Intercompany account Outstanding premiums Inventory Prepayments Accounts receivable At 31 December 18. AMOUNTS DUE TO OTHER BANKS Vostro account balances Other borrowings At 31 December 19. CUSTOMER DEPOSITS On demand and short term deposits Term deposits At 31 December 81,079 2,308,926 63,714 - - 2,361,649 2,074,124 2,188,067 115,258 83,814 - 30,831 6,896 15,311 3,025 208,069 78,311 - 21,447 6,830 12,224 7,767 255,135 334,648 39,185 305,161 344,346 201,192 58,700 259,892 107,147 78,763 4,614 - - 14,706 1,328 206,558 38,789 306,088 344,877 187,035 78,311 6,478 - - 12,224 1,045 285,093 201,179 58,700 259,879 11,589,377 3,005,997 14,595,374 10,725,060 11,390,548 10,765,038 1,983,323 2,857,748 2,039,517 12,708,383 14,248,296 12,804,555 The majority of the amounts are due to be se(cid:425) led within twelve months of the balance sheet date as shown in the maturity analysis table on note 34. The deposits are diversiﬁ ed across industries and region. 62 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 20. SUBORDINATED DEBT SECURITIES At 31 December, there is K75.525 million of debt securi(cid:415) es outstanding, expected to be se(cid:425) led more than 12 months a(cid:332) er the balance sheet date. The notes were issued during 2009, with a maturity date in 2019, and interest is payable semi-annually at 11% per annum. They are valued at amor(cid:415) sed cost. There have been no defaults of interest or other breaches with respect to these debt securi(cid:415) es since issue. 21. OTHER LIABILITIES All amounts are expressed in K’000 Note Creditors and accruals Items in transit and all other liabili(cid:415) es Policy liabili(cid:415) es 39(b) Premiums received in advance Outstanding claims Claims incurred but not reported (IBNR) At 31 December 22. OTHER PROVISIONS Staﬀ related Provision for non-lending loss Provisions – other At 31 December Staﬀ related provisions movement: At 1 January Provisions charge Payouts At 31 December Consolidated Bank 2015 115,785 269,958 563,441 5,969 12,462 1,564 969,179 62,205 47,762 33,731 143,698 67,665 34,969 (40,429) 62,205 2014 94,804 175,849 473,753 293 10,534 1,315 756,548 67,665 41,691 43,588 2015 95,900 257,352 - - - - 2014 66,925 190,749 - - - - 353,252 257,674 55,274 47,743 29,518 62,547 41,666 43,587 152,944 132,535 147,800 62,191 36,203 (30,729) 67,665 62,547 30,535 (37,808) 55,274 57,170 36,106 (30,729) 62,547 23. ORDINARY SHARES Number of shares in '000s, Book value in K'000 At 31 December 2013/1 January 2014 Share buyback At 31 December 2014/1 January 2015 Share buyback At 31 December 2015 Number of shares Book value 468,429 (292) 468,137 (612) 467,525 381,498 (2,201) 379,297 (4,676) 374,621 In May 2014, the Directors agreed to introduce a share-buyback scheme of up to K15 million. The share-buyback commenced in July 2014 and was extended to such (cid:415) me when the allocated K15 million buyback was u(cid:415) lised, or if the Board wishes, any(cid:415) me before that. All amounts are expressed in K’000 Earnings per ordinary share Consolidated Bank 2015 2014 2015 2014 Net proﬁ t a(cid:425) ributable to shareholders (K’000) Weighted average number of ordinary shares in use (‘000) 531,879 467,831 507,339 468,278 505,749 467,831 512,892 468,278 Basic and diluted earnings per share (expressed in toea) 113.7 108.3 108.1 109.5 Basic earnings per ordinary share is calculated by dividing the net proﬁ t a(cid:425) ributable to shareholders by the weighted average number of ordinary shares in issue during the year. Bank of South Paciﬁ c Limited has no dilu(cid:415) ve poten(cid:415) al ordinary shares. Consequently, basic earnings per ordinary share equals diluted earnings per share. Dividend paid on ordinary shares Interim ordinary dividend (2015: 22.5 toea; 2014: 20 toea) Final ordinary dividend (2014: 56 toea; 2013: 46 toea) 105,938 263,872 369,810 93,665 215,476 309,141 105,218 262,021 367,239 93,665 215,476 309,141 64 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 24. RETAINED EARNINGS AND OTHER RESERVES 24. RETAINED EARNINGS AND RESERVES (con(cid:415) nued) All amounts are expressed in K’000 2015 2014 2015 2014 All amounts are expressed in K’000 2015 2014 2015 2014 Consolidated Bank Consolidated Bank Retained earnings At 1 January Net proﬁ t for the year Dividend paid Disposal of assets – Asset revalua(cid:415) on Prior year consolida(cid:415) on adjustment BSP Life policy reserve At 31 December Other reserves comprise: Revalua(cid:415) on reserve Capital reserve Equity component of Fiji Class Shares General reserve Exchange reserve At 31 December Movement in reserves for the year: Revalua(cid:415) on reserve At 1 January Asset revalua(cid:415) on increment Transfer assets revalua(cid:415) on reserve to retained earnings Deferred tax on disposal of proper(cid:415) es Deferred tax on asset revalua(cid:415) on – prior year Deferred tax on asset revalua(cid:415) on – current year At 31 December Capital reserve At 1 January At 31 December General reserve At 1 January BSP Life policy reserve At 31 December 1,219,436 531,879 (369,810) 22,103 - (4,118) 1,399,490 1,035,290 507,339 (309,141) 12,441 (2,438) (24,055) 1,219,436 1,183,505 505,749 (367,239) 22,103 - 991,368 512,892 (309,141) 12,441 - (4,118) (24,055) 1,340,000 1,183,505 166,878 166,230 163,023 166,230 635 21,578 31,048 34,926 255,065 166,230 21,450 (22,103) 6,631 - (5,330) 166,878 635 635 26,930 4,118 31,048 635 21,578 26,930 (13,913) 201,460 170,103 44,330 (12,441) - (23,051) (12,711) 166,230 635 635 2,875 24,055 26,930 635 - 31,048 21,663 216,369 166,230 14,304 (22,103) 6,631 - (2,039) 163,023 635 635 26,930 4,118 31,048 635 - 26,930 (10,249) 183,546 170,103 44,330 (12,441) - (23,051) (12,711) 166,230 635 635 2,875 24,055 26,930 Exchange reserve At 1 January Movement during the year At 31 December Equity component of conver(cid:415) ble notes (13,913) 48,839 34,926 10,441 (24,354) (13,913) (10,249) 31,912 21,663 7,833 (18,082) (10,249) On 20 April 2010, the Group issued 3,064,967 Fiji Dollars (FJD) denominated mandatory conver(cid:415) ble notes through its wholly owned subsidiary BSP Conver(cid:415) ble Notes Limited (BSP CN) at an issue price of FJD5.25 (K7.30) per note. The notes mandatorily converted to Fiji Class Shares on 20 April 2013 based on a conversion ra(cid:415) o of 1:1. Key rights of Fiji Class Shareholders are as follows: The right to receive dividend equal to the amount of dividend to be paid on BSP Ordinary Share. (i) (ii) The same vo(cid:415) ng rights as a BSP Ordinary Share and eﬀ ected through a special vo(cid:415) ng share held by the Chairman of BSP. (iii) The Fiji Class Share may be exchanged on a one for one basis into BSP Ordinary Shares at a subsequent date and at the op(cid:415) on of BSP on the occurrence of certain prescribed events. 25. CONTINGENT LIABILITIES AND COMMITMENTS Oﬀ balance sheet ﬁ nancial instruments Standby le(cid:425) ers of credit Guarantees and indemni(cid:415) es issued Trade le(cid:425) ers of credit Commitments to extend credit At 31 December Legal Proceedings 31,164 304,086 46,139 1,224,744 1,606,133 24,797 293,853 20,091 1,009,943 1,348,684 31,164 299,857 45,255 1,223,746 1,600,022 24,797 292,489 20,091 1,008,952 1,346,329 A number of legal proceedings against the Bank and the Group were outstanding as at 31 December 2015. Based on informa(cid:415) on available at 31 December 2015, the Bank and the Group es(cid:415) mates a con(cid:415) ngent liability of K8.9 million (2014: K37.4 million) in respect of these proceedings. Statutory deposits with the Central Bank Cash reserve requirement: requisite reserve requirements of respec(cid:415) ve countries Commitments for capital expenditure Amounts with ﬁ rm commitments, and not reﬂ ected in the accounts Opera(cid:415) ng lease commitments Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years At 31 December 1,359,606 1,251,582 1,341,650 1,251,582 29,505 74,105 20,631 65,315 22,466 36,421 16,797 75,684 19,918 38,116 15,621 73,655 22,466 36,421 16,797 75,684 19,704 37,486 15,621 72,811 66 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 26. FIDUCIARY ACTIVITIES 27. DIRECTORS AND EXECUTIVE REMUNERATION (con(cid:415) nued) The Group especially through BSP Capital Limited conducts investment fund management, stock broking and other ﬁ duciary ac(cid:415) vi(cid:415) es as responsible en(cid:415) ty, trustee, custodian or manager for investment funds and trusts, including superannua(cid:415) on. These funds are not consolidated as the Group does not have direct or indirect control. Where the funds incurs liabili(cid:415) es in respect of these ac(cid:415) vi(cid:415) es, and the primary obliga(cid:415) on is incurred in an agency capacity, for the fund or clients rather than its own account, a right of indemnity exists against the assets of the applicable fund or trust. As these assets are suﬃ cient to cover the liabili(cid:415) es and it is therefore not probable that the Group will be required to se(cid:425) le the liabili(cid:415) es, the investments in the assets and liabili(cid:415) es of these ac(cid:415) vi(cid:415) es are not included in the consolidated ﬁ nancial statements. 27. DIRECTORS AND EXECUTIVE REMUNERATION Directors remunera(cid:415) on Directors of the company received remunera(cid:415) on including beneﬁ ts during 2015 as detailed below: All amounts in Kina Name of Director Sir K. Constan(cid:415) nou, OBE T. E. Fox, OBE, BEc Dr. I. Temu, PhD, MEc Sir N. Bogan, KBE, LLB R. Fleming*, CSM, MBA, MMGT G. Aopi, CBE, MBA G. Robb, OAM, BA, MBA F. Talao, LLM, MPHIL E. B Gangloﬀ , CPA, GAICD A. Mano, BEc, MSc Total remunera(cid:415) on Mee(cid:415) ngs a(cid:425) ended/total held Appointed/(Resigned) 8/8 7/8 7/8 5/8 8/8 8/8 7/8 8/8 7/8 7/8 - - - - - - - - - 29/08/14 2015 293,105 251,351 133,966 139,000 - 147,872 376,039 137,950 142,119 122,855 2014 277,759 243,492 123,904 127,083 - 126,934 363,283 115,121 116,771 26,250 1,744,257 1,664,608 Directors Sir Kostas Constan(cid:415) nou, OBE, Freda Kanek Talao and Geoﬀ rey John Robb re(cid:415) red by rota(cid:415) on in accordance with Clause 15.3 of the Company’s Cons(cid:415) tu(cid:415) on and being eligible, oﬀ ered themselves for re-elec(cid:415) on by the shareholders on 25 May 2015 Annual General Mee(cid:415) ng. Augus(cid:415) ne Mano was elected by the shareholders at the same Annual Mee(cid:415) ng on 25 May 2015. Non-execu(cid:415) ve Board Members of the Board - Constan(cid:415) nou, Fox and Robb received an allowance of K60,000 as Directors of BSP Capital Ltd which forms part of the Group. *Managing Director/Chief Execu(cid:415) ve Oﬃ cer receives no fees for his services as Director during the year. Other members of BSP execu(cid:415) ve management who serve as directors of subsidiaries of BSP Group receive no fees for their services as Director. Execu(cid:415) ve remunera(cid:415) on The number of employees or former employees whose income from the Bank was equal to or greater than K100,000 during the year, are classiﬁ ed in income bands of K10,000 as follows: Remunera(cid:415) on K’000 100 – 110 110 – 120 120 - 130 130 - 140 140 - 150 150 - 160 160 – 170 170 – 180 180 – 190 190 – 200 200 – 210 210 – 220 220 – 230 230 – 240 240 – 250 250 – 260 260 – 270 270 – 280 280 – 290 290 – 300 300 - 310 310 – 320 320 – 330 330 – 340 340 – 350 350 – 360 360 – 370 2015 No. 36 29 21 17 17 12 7 13 9 3 3 3 4 2 2 5 4 8 8 3 3 3 4 3 3 1 5 2014 Remunera(cid:415) on No. 35 25 22 25 16 8 9 7 2 2 4 3 4 7 8 5 2 5 8 3 2 5 3 1 1 2 5 K’000 370 – 380 380 - 390 390 - 400 410 - 410 410 - 420 420 - 430 430 – 440 440 – 450 450 – 460 460 – 470 490 – 500 500 – 510 510 – 520 520 – 530 540 – 550 560 – 570 570 - 580 590 - 600 600 – 610 610 - 620 620 – 630 630 – 640 640 – 650 650 – 660 660 – 670 680 - 690 690 - 700 2015 No. - 3 0 1 - 2 - 2 1 4 - - 1 2 2 5 1 3 1 3 - 2 1 2 2 3 3 2014 Remunera(cid:415) on No. 1 - 5 2 2 1 1 2 1 1 - 1 - - 1 1 1 2 2 2 4 2 2 1 1 3 2 K’000 700 - 710 710 - 720 720 - 730 730 - 740 750 – 760 770 – 780 780 – 790 800 -810 820 – 830 830 – 840 850 – 860 880 – 890 890 – 900 910 – 920 950 - 960 980 - 990 1090 - 1100 1100 – 1100 1170 - 1180 1190 -1200 1230 -1240 1270 - 1280 1630 - 1640 1660 - 1670 1730 - 1740 1840 - 1850 3560 - 3570 2015 No. 2014 No. 2 2 2 1 - 1 - 2 2 - 1 1 - 1 - 1 1 1 1 - - - 2 1 1 - 1 - 1 - 3 3 1 8 - - 2 3 - 1 - 1 - - 1 1 1 1 1 1 - - 1 1 Total 296 291 The speciﬁ ed execu(cid:415) ves during the year were: Robin Fleming, CSM Johnson Kalo Aho Baliki, OBE Robert Loggia Peter Beswick Giau Duruba Haroon Ali Paul Thornton Rohan George Richard Borysiewicz Edward Ruha Christophe Michaud Speciﬁ ed execu(cid:415) ves’ remunera(cid:415) on in aggregate (K’000) Year 2015 2014 Salary 11,478 11,302 Primary bonus Non - monetary 2,443 3,128 397 207 Super 222 193 Post-employment prescribed beneﬁ ts - - Other - - Equity op(cid:415) ons Other beneﬁ ts - - 375 710 Total 14,915 15,540 68 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 28. RECONCILIATION OF OPERATING CASH FLOW 29. SEGMENT INFORMATION All amounts are expressed in K’000 2015 2014 2015 2014 Consolidated Bank Reconcilia(cid:415) on of opera(cid:415) ng proﬁ t a(cid:332) er tax to opera(cid:415) ng cash ﬂ ow before changes in opera(cid:415) ng assets Opera(cid:415) ng proﬁ t a(cid:332) er tax Add: Tax Expense Opera(cid:415) ng proﬁ t before income tax Major non cash amounts Deprecia(cid:415) on Amor(cid:415) sa(cid:415) on of deferred acquisi(cid:415) on and computer development costs Net (proﬁ t)/loss on sale of ﬁ xed assets Movement in foreign exchange income accrual Movement in provision for doub(cid:414) ul debts Movement in payroll provisions Impairment of subsidiary Impairment of ﬁ xed assets Net eﬀ ect of other accruals 531,879 234,271 766,150 74,243 44,713 (2,621) 45,625 89,905 (5,460) - 44,666 (13,500) 507,339 211,511 718,850 80,731 46,116 1,210 (13,344) 112,076 2,821 - 50,397 6,047 Opera(cid:415) ng cash ﬂ ow before changes in opera(cid:415) ng assets 1,043,721 1,004,904 505,749 222,387 728,136 67,607 44,224 (2,621) 44,601 86,657 (7,273) 11,068 44,666 (28,669) 988,396 512,892 209,560 722,452 76,707 46,116 1,210 (10,461) 112,076 2,821 - 50,397 (10,571) 990,747 Cash and cash equivalents For the purposes of the cash ﬂ ow statement, cash and cash equivalents comprise the following balances with less than 90 days maturity. Cash and balances with Central Banks (note 10) Amounts due from other banks (note 12) Amounts due to other banks (note 18) At 31 December 1,202,466 695,280 (344,346) 1,553,400 1,355,469 380,653 (259,892) 1,476,230 1,010,856 1,262,306 572,400 (344,877) 1,238,379 380,653 (259,879) 1,383,080 Bank of South Paciﬁ c Limited and Group comprises various segments, these being the provision of banking services and products, stock broking and insurance services and asset ﬁ nancing. For management purposes, segment informa(cid:415) on determina(cid:415) on is based on the risks involved with the provision of core banking services and products and the Bank and Group’s management repor(cid:415) ng system. The main business lines for management purposes are core banking segments of retail bank, wholesale bank which includes corporate and paramount strategic business units, insurance opera(cid:415) ons in Fiji, and BSP Capital’s stock broking and fund management ac(cid:415) vi(cid:415) es. The Bank of South Paciﬁ c Limited and Group’s business segments operates in Papua New Guinea, Fiji, Solomon Islands, Cook Islands, Tonga and Samoa. Inter segment adjustments reﬂ ects elimina(cid:415) on entries in respect of inter segment income and expense alloca(cid:415) ons included funds transfer pricing. All amounts are in K’000 Analysis by segments Year ended 31 December 2015 Net interest income Other income Net insurance income Total opera(cid:415) ng income Opera(cid:415) ng expenses Impairment expenses Proﬁ t before income tax Income tax Net proﬁ t a(cid:332) er income tax Year ended 31 December 2014 Net interest income Other income Net insurance income Total opera(cid:415) ng income Opera(cid:415) ng expenses Impairment expenses Proﬁ t before income tax Income tax Net proﬁ t a(cid:332) er income tax PNG Retail Bank PNG Wholesale Bank PNG Bank Other Non PNG Bank Non Bank En(cid:415) (cid:415) es Adjust Inter Segments Total 234,523 252,402 - 443,477 209,970 112,624 139,125 3,540 119,780 - - - 486,925 582,602 213,510 232,404 5,657 7,468 21,245 34,370 - 1,006,251 (2,672) 519,643 - 21,245 (2,672) 1,547,139 (288,946) (64,837) (206,598) (128,324) (15,102) 12,723 (691,084) (41,874) 156,105 (24,324) 493,441 (47,735) (154,270) 108,370 339,171 (6,912) (14,194) - - - 89,886 (23,063) 66,823 (2,601) 16,667 (9,203) - (89,905) 10,051 766,150 - (234,271) 7,464 10,051 531,879 188,478 256,047 - 454,082 145,849 219,457 44,702 - - 95,260 89,012 - 444,525 673,539 190,551 184,272 31 1,061 884,761 8,572 (19,504) 598,286 15,684 24,287 - 15,684 (18,443) 1,498,731 (376,859) (55,361) (153,472) (108,072) (10,847) 1,526 (703,085) (20,986) 5,685 (37,079) (24,416) - - (76,796) 46,680 623,863 (12,759) (183,498) 33,921 440,365 - - - 51,784 13,440 (16,917) 718,850 (13,303) (1,951) - (211,511) 38,481 11,489 (16,917) 507,339 70 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 30. RELATED PARTY TRANSACTIONS 31. BANK OPERATIONS, RISKS AND STRATEGIES IN USING FINANCIAL INSTRUMENTS Related par(cid:415) es are considered to be enterprises or individuals with whom the Bank and the Group is especially related because either they or the Bank are in a posi(cid:415) on to signiﬁ cantly inﬂ uence the outcome of transac(cid:415) ons entered into with the Bank and the Group, by virtue of being able to control, dominate or par(cid:415) cipate in a ﬁ duciary capacity, in decision-making func(cid:415) ons or processes. The Bank and the Group conducted transac(cid:415) ons with the following classes of related par(cid:415) es during the year: All business opera(cid:415) ons must deal with a variety of opera(cid:415) onal and ﬁ nancial risks. The business ac(cid:415) vi(cid:415) es of a bank expose it to very cri(cid:415) cal and speciﬁ c risks, which are principally related to the Bank and the Group’s primary ﬁ nancial intermediary role in the ﬁ nancial markets, including the use of ﬁ nancial instruments including deriva(cid:415) ves. These market risks (risk of an advance event in the ﬁ nancial markets that may result in loss of earnings) include liquidity risk, foreign exchange risk, interest rate risk and credit risk. • • Directors and/or par(cid:415) es in which the director has signiﬁ cant inﬂ uence Key management personnel and other staﬀ and/or par(cid:415) es in which the individual oﬃ cer has signiﬁ cant inﬂ uence A number of banking transac(cid:415) ons are entered into with these related par(cid:415) es in the normal course of business, and include loans, deposits, property rentals, share transfers and foreign currency transac(cid:415) ons. These transac(cid:415) ons are carried out on commercial terms and market rates. For the year ended 31 December 2015, balances and transac(cid:415) ons of accounts for Directors, including companies in which directorships were held by BSP directors, were as follows: All amounts are expressed in K’000 Customer deposits Opening balances Net movement Closing balance Interest paid Loans, advances and other receivables from customers Opening balances Loans issued Interest Charges Loan repayments Closing balance 2015 142,812 (39,872) 102,940 1,967 599,994 73,272 43,000 6,656 (103,937) 618,985 2014 192,446 (49,634) 142,812 2,350 384,321 304,949 35,721 4,450 (129,447) 599,994 Incen(cid:415) ve-based transac(cid:415) ons are provided for staﬀ . Such transac(cid:415) ons include marginal discounts on rates, and speciﬁ c fee concessions. These incen(cid:415) ves are mainly percentage-based on market rates and fees, and as such, staﬀ accounts are always subject to underlying market trends in interest rates and fees. As at 31 December 2015, staﬀ account balances were as follows: All amounts are expressed in K’000 Housing loans Other loans At 31 December Cheque accounts Foreign currency accounts Savings accounts At 31 December 2015 87,090 34,929 122,019 8,920 1 11,399 20,320 2014 54,711 30,889 85,600 10,630 487 11,023 22,140 The Bank and the Group accepts deposits from customers at both ﬁ xed and ﬂ oa(cid:415) ng rates and for various periods and seeks to earn above average interest margins by inves(cid:415) ng these funds in high quality assets. These margins are achieved and increased by consolida(cid:415) ng short - term funds and lending for longer periods at higher rates whilst maintaining suﬃ cient liquidity to meet all claims that might fall due. The Bank and the Group also seeks to op(cid:415) mise its interest margins by obtaining above average returns, net of provisions, through lending to commercial and retail borrowers with a range of credit standing. In addi(cid:415) on to directly advancing funds to borrowers, the Bank and the Group also enters into guarantees and other commitments such as le(cid:425) ers of credit, performance bonds, and other bonds. The Bank and the Group also enters into transac(cid:415) ons denominated in foreign currencies. This ac(cid:415) vity generally requires the Bank and the Group to take foreign currency posi(cid:415) ons in order to exploit short term movements in the foreign currency market. The Board places limits on the size of these posi(cid:415) ons. The Bank and the Group also has a policy of using oﬀ se(cid:427) ng commitments for foreign exchange contracts, eﬀ ec(cid:415) vely minimising the risk of loss due to adverse movements in foreign currencies. Risk in the Bank and the Group is managed through a system of delegated limits. These limits set the maximum level of risk that can be assumed by each opera(cid:415) onal unit and the Bank and the Group as a whole. The limits are delegated from the Board of Directors to execu(cid:415) ve management and hence to the respec(cid:415) ve opera(cid:415) onal managers. The risk management framework establishes roles, responsibili(cid:415) es and accountabili(cid:415) es of the Asset and Liability Commi(cid:425) ee, the Credit Commi(cid:425) ee, the Opera(cid:415) onal Risk Commi(cid:425) ee and the Execu(cid:415) ve Commi(cid:425) ee, the speciﬁ c management commi(cid:425) ees charged with the responsibility for ensuring the Bank and the Group has appropriate systems, policies and procedures to measure, monitor and report on risk management. The framework also includes policies and procedures which detail formal feedback processes to these management commi(cid:425) ees, to the Audit, Risk and Compliance Commi(cid:425) ee of the Board, and ul(cid:415) mately to the Board of Directors. 32. CAPITAL ADEQUACY The Bank and the Group is required to comply with various pruden(cid:415) al standards issued by the Bank of Papua New Guinea (BPNG), the oﬃ cial authority for the pruden(cid:415) al supervision of banks and similar ﬁ nancial ins(cid:415) tu(cid:415) ons in Papua New Guinea. Addi(cid:415) onally, subsidiaries and branches in Fiji, Solomon Islands, Cooks Islands, Samoa and Tonga are required to adhere to pruden(cid:415) al standards issued by the Reserve Bank of Fiji (RBF), Central Bank of Solomon Islands (CBSI), The Financial Supervisory Commission (FSC), Central Bank of Samoa (CBS) and Na(cid:415) onal Reserve Bank of Tonga (NRBT) respec(cid:415) vely. One of the most cri(cid:415) cal pruden(cid:415) al standards is the capital adequacy requirement. All banks are required to maintain at least the minimum acceptable measure of capital to risk-weighted assets to absorb poten(cid:415) al losses. The BPNG follows the pruden(cid:415) al guidelines set by the Bank of Interna(cid:415) onal Se(cid:425) lements under the terms of the Basel Accord. The BPNG revised pruden(cid:415) al standard 1/2003, Capital Adequacy, prescribes ranges of overall capital ra(cid:415) os to measure whether a bank is under, adequately, or well capitalised, and also applies the leverage capital ra(cid:415) o. The Bank and the Group complies with the prevailing pruden(cid:415) al requirements for total capital and leverage capital. As at 31 December 2015, the Bank and the Group’s total capital adequacy ra(cid:415) o and leverage capital ra(cid:415) o sa(cid:415) sﬁ ed the capital adequacy criteria for a ‘well-capitalised’ bank. The minimum capital adequacy requirements set out under the standard are: Tier 1 8%, total risk based capital ra(cid:415) o 12% and the leverage ra(cid:415) o 6%. The measure of capital used for the purposes of pruden(cid:415) al supervision is referred to as base capital. Total base capital varies from the balance of capital shown on the statement of ﬁ nancial posi(cid:415) on and is made up of (cid:415) er 1 capital (core) and (cid:415) er 2 capital (supplementary). Tier 1 capital is obtained by deduc(cid:415) ng from equity capital and audited retained earnings (or losses), intangible assets including deferred tax assets. Tier 2 capital cannot exceed the amount of (cid:415) er 1 capital, and can include subordinated loan capital, speciﬁ ed asset revalua(cid:415) on reserves, un-audited proﬁ ts (or losses) and a small percentage of general loan loss provisions. The leverage capital ra(cid:415) o is calculated as Tier 1 capital divided by total assets on the balance sheet. Risk weighted assets are derived from on-balance sheet and oﬀ -balance sheet assets. On balance sheet assets are weighted for credit risk by applying weigh(cid:415) ngs (0, 20, 50 and 100 per cent) according to risk classiﬁ ca(cid:415) on criteria set by the BPNG. Oﬀ -balance sheet exposures are risk weighted in the same way a(cid:332) er conver(cid:415) ng them to on-balance sheet credit equivalents using BPNG speciﬁ ed credit conversion factors. The Bank and the Group’s capital adequacy level is as follows: All amounts are expressed in K’000 Balance sheet assets (net of provisions) Currency Loans, advances and other receivables from customers Investments and short term securi(cid:415) es All other assets Oﬀ balance sheet items Total Balance sheet/No(cid:415) onal amount Risk weighted amount 2015 2014 2015 2014 2,562,072 8,621,514 4,812,035 2,200,682 1,606,133 2,607,051 6,756,997 4,544,886 1,907,573 1,348,684 - - 6,693,220 5,726,934 - - 1,415,736 1,301,840 271,380 194,548 19,802,436 17,165,191 8,380,336 7,223,322 72 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 32. CAPITAL ADEQUACY (cid:904)con(cid:415) nued(cid:905) 33. CREDIT RISK AND ASSET QUALITY (con(cid:415) nued) Capital Ra(cid:415) os Capital (K’000) All amounts are expressed in K’000 a) Tier 1 capital Tier 1 + Tier 2 capital b) Leverage Capital Ra(cid:415) o 33. CREDIT RISK AND ASSET QUALITY 2015 1,603,825 1,952,807 - 2014 1,412,838 1,746,292 - Capital Adequacy Ra(cid:415) o (%) 2015 19.0% 23.1% 8.9% 2014 19.4% 24.0% 9.0% The Bank incurs risk with regard to loans, advances and other receivables due from customers and other monies or investments held with ﬁ nancial ins(cid:415) tu(cid:415) ons. Credit risk is the likelihood of future ﬁ nancial loss resul(cid:415) ng from the failure of clients or counter-par(cid:415) es to meet contractual obliga(cid:415) ons to the Bank and the Group as they fall due. Credit risk is managed by analysing the risk spread across various sectors of the economy and by ensuring risk is diversely spread by personal and commercial customer. Individual exposures are measured using repayment performance, reviews and sta(cid:415) s(cid:415) cal techniques. Comprehensive credit standards and approval limits have been formulated and approved by the Credit Commi(cid:425) ee. The Credit Commi(cid:425) ee (which reports to the Board through the Execu(cid:415) ve and Chief Execu(cid:415) ve Oﬃ cer) is responsible for the development and implementa(cid:415) on of credit policy and loan por(cid:414) olio review methodology. The Credit Commi(cid:425) ee is the ﬁ nal arbiter of risk management and loan risk concentra(cid:415) on. As indicated in Accoun(cid:415) ng Policy G – Loans and provision for loan impairment, the Bank and the Group has in place processes that iden(cid:415) fy, assess and control credit risk in rela(cid:415) on to the loan por(cid:414) olio, to assist in determining the appropriateness of provisions for loan impairment. These processes also enable assessments to be made of other classes of assets that may carry an element of credit risk. The Bank and the Group assigns quality indicators to its credit exposures to determine the asset quality proﬁ le. Large credit exposures are also monitored as part of credit risk management. These are classiﬁ ed as the largest 25 individual accounts or groups of related counter-par(cid:415) es. As at 31 December 2015, the 25 largest exposures totaled K4.6 billion, accoun(cid:415) ng for over 53% of the Bank and 50% of the Group’s total loan por(cid:414) olio (2014: K4.1 billion, accoun(cid:415) ng for over 58% and 57% respec(cid:415) vely). The Bank of Papua New Guinea has maintained a revised pruden(cid:415) al standard for asset quality since October 2003. The revised standard speciﬁ es more detailed criteria for the classiﬁ ca(cid:415) on of loans into various grades of default risk and corresponding loss provision levels as a consequence of those grading’s. An analysis by credit quality of loans outstanding at 31 December 2015 is as follows: 2015 Overdra(cid:332) s Term loans Mortgages Lease ﬁ nancing Policy loans Total Neither past due nor impaired 501,022 6,781,727 910,964 222,097 42,761 8,458,571 Past due but not impaired - Less than 30 days - 30 to 90 days - 91 to 360 days Individually impaired loans - Less than 30 days - 30 to 90 days - 91 to 360 days - More than 360 days Total gross loans, advances and other receivables from customers Less impairment provisions Net loans and advances 65,606 3,417 2,815 71,838 123 - 5,820 4,633 10,576 583,436 139,621 63,060 19,524 222,205 4,780 3,011 28,862 18,513 55,166 99,990 55,027 12,918 167,935 6,398 1,600 20,234 30,807 59,039 7,059,098 1,137,938 2,584 4,783 820 8,187 - - 14,610 259 14,869 245,153 - - - - - - - - - 307,801 126,287 36,077 470,165 11,301 4,611 69,526 54,212 139,650 42,761 9,068,386 (446,872) 8,621,514 Credit Related Commitments These instruments are used to ensure that funds are available to a customer as required. The Bank and the Group deals principally in the credit related commitments set out below. Guarantees and standby le(cid:425) ers of credit, which represent irrevocable assurances that the Bank and the Group will make payments in the event that a customer cannot meet its obliga(cid:415) ons to third par(cid:415) es, carry the same risk as loans. Documentary and trade le(cid:425) ers of credit are wri(cid:425) en undertakings by the Bank and the Group on behalf of a customer, authorising a third party to draw dra(cid:332) s on the Bank and the Group for speciﬁ ed amounts under speciﬁ ed terms and condi(cid:415) ons. They are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a conven(cid:415) onal loan. Commitments to extend credit represent undrawn por(cid:415) ons of authorisa(cid:415) ons to extend credit in the form of loans, guarantees or le(cid:425) ers of credit. Whilst the poten(cid:415) al exposure to loss equates to the total undrawn commitments, the likely amount of loss is less than the total commitment since the commitments to extend credit are con(cid:415) ngent upon customers maintaining speciﬁ c credit standards. The Bank and the Group monitors the term to maturity of these commitments because longer term commitments generally carry a greater degree of credit risk than shorter term commitments. Economic sector risk concentra(cid:415) ons Economic sector risk concentra(cid:415) ons within the customer loan por(cid:414) olio are as follows: All amounts are expressed in K'000 As at 31 December Commerce, ﬁ nance and other business Private households Government and public authori(cid:415) es Agriculture Transport & communica(cid:415) on Manufacturing Construc(cid:415) on Net loan por(cid:414) olio balance Ownership risk concentra(cid:415) ons Ownership risk concentra(cid:415) ons within the customer loan por(cid:414) olio are as follows: Corporate/Commercial Government Retail Net loan por(cid:414) olio balance 34. LIQUIDITY RISK 2015 % 2014 5,136,578 60 3,665,694 1,669,618 19 948,957 126,141 405,766 582,835 244,371 456,205 1 5 7 3 5 81,873 322,532 792,809 298,307 646,825 % 54 14 1 5 12 4 10 8,621,514 100 6,756,997 100 4,625,570 2,110,014 1,885,930 54 24 22 4,309,941 1,149,503 1,297,553 64 17 19 8,621,514 100 6,756,997 100 Liquidity risk is the risk of being unable to meet ﬁ nancial obliga(cid:415) ons as they fall due. The Board, through the Asset and Liability Commi(cid:425) ee, sets liquidity policy to ensure that the Bank and the Group has suﬃ cient funds available to meet all its known and poten(cid:415) al obliga(cid:415) ons. The matching and controlled mismatching of the maturi(cid:415) es and interest rates of assets and liabili(cid:415) es is fundamental to the management of banking ac(cid:415) vi(cid:415) es. An unmatched posi(cid:415) on poten(cid:415) ally enhances proﬁ tability, but can also increase the risk of losses. Short-term mismatch of asset and liability maturity at 31 December 2015 The maturity proﬁ le of material Assets and Liabili(cid:415) es as at 31 December 2015 is shown in the following schedule. The mismatching of maturity of assets and liabili(cid:415) es indicates an apparent nega(cid:415) ve net “current” asset posi(cid:415) on. However, as stated in the preceding paragraph, mismatched posi(cid:415) ons are established and managed to achieve proﬁ t opportuni(cid:415) es that arise from them, par(cid:415) cularly in a normal yield curve environment. Accordingly, this mismatched maturity posi(cid:415) on is considered manageable by the Bank and the Group, and does not impair the ability of the Bank and the Group to meet its ﬁ nancial obliga(cid:415) ons as they fall due. The Directors are also of the view that the Bank and the Group is able to meet its ﬁ nancial obliga(cid:415) ons as they fall due for the following addi(cid:415) onal reasons: • The Bank complies with the Cash Reserve Requirement (“CRR”) set by the regulatory authori(cid:415) es of the jurisdic(cid:415) ons that the Bank operates in. The CRR speciﬁ es that a bank must hold an amount equal to a percentage of its total customer deposits in the form of cash in an account maintained by the respec(cid:415) ve Central Bank. The Bank complies with this daily requirement on an ongoing basis. The balance of the CRR account is shown in Note 25, Statutory Deposits with the Central Bank. 74 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 34. LIQUIDITY RISK (con(cid:415) nued) Maturity of assets and liabili(cid:415) es All amounts are expressed in K'000 As at 31 December 2015 Up to 1 month 1 - 3 months 3 - 12 months 1 - 5 years Over 5 years Total Assets Cash and balances with Central Bank Treasury & Central Bank bills Amounts due from other banks Loans, advances and other receivables from customers Other ﬁ nancial assets Total assets Liabili(cid:415) es 2,562,072 645,928 630,079 - - 624,880 1,222,753 27,731 37,470 - - - - 9,548 2,562,072 2,503,109 - 695,280 1,058,463 403,714 1,061,606 3,248,162 2,849,569 8,621,514 16,534 157,000 175,395 1,317,947 642,050 2,308,926 4,913,076 1,213,325 2,497,224 4,566,109 3,501,167 16,690,901 Amounts due to other banks 291,616 11,743 40,841 146 - 344,346 Customer deposits Other liabili(cid:415) es Other provisions Total liabili(cid:415) es Net liquidity gap As at 31 December 2014 Total assets Total liabili(cid:415) es Net liquidity gap 35. OPERATIONAL RISK 11,178,740 546,155 1,533,035 146,407 1,191,037 14,595,374 957,047 182,703 397 - 1,621 - 2,984 82,655 1,044,704 - - 182,703 12,610,106 558,295 1,575,497 149,537 1,273,692 16,167,127 (7,697,030) 655,030 921,727 4,416,572 2,227,475 523,774 5,692,609 568,496 1,608,423 3,148,690 3,271,369 14,289,587 12,799,244 309,789 709,421 122,125 75,735 14,016,314 (7,106,635) 258,707 899,002 3,026,565 3,195,634 273,273 Opera(cid:415) onal risk is the poten(cid:415) al exposure to unexpected ﬁ nancial or non-ﬁ nancial losses arising from the way in which the Bank and the Group conducts its business. Examples of opera(cid:415) onal risks include employee errors, systems failures, ﬁ re, ﬂ oods, or similar losses to physical assets, fraud, or criminal ac(cid:415) vity. Opera(cid:415) onal risk is managed through formal policies, documented procedures, business prac(cid:415) ces and compliance monitoring. An opera(cid:415) onal risk management func(cid:415) on is responsible for the maintenance of these policies, procedures prac(cid:415) ces and monitoring the organisa(cid:415) on’s compliance with them. The Opera(cid:415) onal Risk Commi(cid:425) ee coordinates the management process across the organisa(cid:415) on. An independent internal audit func(cid:415) on also conducts regular reviews to monitor compliance with approved BPNG standards and examines the general standard of control. The Opera(cid:415) onal Risk Commi(cid:425) ee and the internal audit func(cid:415) on mandatorily report to the Board Audit, Risk and Compliance Commi(cid:425) ee. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 36. FOREIGN EXCHANGE RISK Foreign exchange risk is the risk to earnings caused by a change in foreign exchange rates on open currency posi(cid:415) ons. The objec(cid:415) ve of foreign exchange risk management within the Bank and the Group is to minimise the impact on earnings of any such movement. The Bank and the Group accepts foreign currency denominated transac(cid:415) ons and therefore has exposure to movements in foreign currency. The Bank and the Group has a policy to oﬀ set these transac(cid:415) ons to minimise daily exposure. As foreign exchange contracts generally consist of oﬀ se(cid:427) ng commitments, they involve only limited foreign exchange risk to the Bank and the Group and material loss is not envisaged. Currency concentra(cid:415) on of assets, liabili(cid:415) es, and oﬀ -balance sheet items. All amounts are expressed in K'000 As at 31 December 2015 PGK FJD SBD USD Other Total Assets Cash and balances with Central Bank Treasury & Central Bank bills Amounts due from other banks Loans, advances and other receivables from customers Other ﬁ nancial assets Other assets Total assets Liabili(cid:415) es 1,492,074 2,284,741 117,296 444,596 35,620 58,986 5,851,464 1,733,203 2,074,124 1,278,357 234,802 125,968 214,083 180,896 26,423 183,451 - 54,988 2,727 - 135,140 164,301 - - 408,592 1,852 357,435 689,095 - 46,089 2,562,072 2,503,109 695,280 8,621,514 2,308,926 1,505,402 13,098,056 2,633,175 659,841 302,168 1,503,063 18,196,303 Amounts due to other banks (230,615) (59,545) (54) (29,776) (24,356) (344,346) Customer Deposits Other liabili(cid:415) es Total liabili(cid:415) es (10,258,953) (2,073,203) (724,148) (677,256) (861,814) (14,595,374) (1,035,729) (76,104) (50,184) - (65,390) (1,227,407) (11,525,297) (2,208,852) (774,386) (707,032) (951,560) (16,167,127) Net on - balance sheet posi(cid:415) on 1,572,759 424,323 (114,545) (404,864) 551,503 2,029,176 Oﬀ - balance sheet net no(cid:415) onal posi(cid:415) on (45) - Credit commitments 1,259,124 338,854 - 4,352 (1,562) - 6,159 3,802 4,552 1,606,131 31 December 2014 Total Assets Total Liabili(cid:415) es 12,495,902 2,067,893 534,191 202,444 516,077 15,816,507 (10,808,958) (1,897,941) (432,807) (281,774) (594,834) (14,016,314) Net on - balance sheet posi(cid:415) on 1,686,944 169,952 101,384 (79,330) Oﬀ - balance sheet net no(cid:415) onal posi(cid:415) on - - - Credit commitments 1,065,452 266,152 14,725 9,977 - (78,757) (10,713) 1,800,193 (736) - 1,346,329 The following table presents sensi(cid:415) vi(cid:415) es of proﬁ t or loss and equity to possible changes in exchange rates applied at the end of the repor(cid:415) ng period, rela(cid:415) ve to the func(cid:415) onal currency of the respec(cid:415) ve Group en(cid:415) (cid:415) es, with all other variables held constant: All amounts are expressed in K'000 USD strengthening by 1% (2014 – 1%) USD dollar weakening by 1% (2014 – 1%) AUD strengthening by 1% (2014 – 1%) AUD dollar weakening by 1% (2014 – 1%) At 31 December 2015 At 31 December 2014 Impact on proﬁ t or loss Impact on equity Impact on proﬁ t or loss Impact on equity 1,372 (1,345) 7 (7) 1,372 (1,345) 7 (7) 903 (885) (25) 24 903 (885) (25) 24 76 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 37. INTEREST RATE RISK 38. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES Interest rate risk in the balance sheet arises from the poten(cid:415) al for a change in interest rate to have an adverse eﬀ ect on the revenue earnings in the current repor(cid:415) ng period and future years. As interest rates and yield curves change over (cid:415) me the Bank and the Group may be exposed to a loss in earnings due to the eﬀ ects of interest rates on the structure of the balance sheet. Sensi(cid:415) vity to interest rates arises from mismatches in the re-pricing dates, cash ﬂ ows and other characteris(cid:415) cs of the assets and their corresponding liability funding. These mismatches are ac(cid:415) vely managed as part of the overall interest rate risk management process governed by the Assets and Liabili(cid:415) es Commi(cid:425) ee (ALCO), which meets regularly to review the eﬀ ects of ﬂ uctua(cid:415) ons in the prevailing levels of market interest rates on the ﬁ nancial posi(cid:415) on and cash ﬂ ows of the Bank and the Group. The objec(cid:415) ve of interest rate risk control is to minimise these ﬂ uctua(cid:415) ons in value and net interest income over (cid:415) me, providing secure and stable sustainable net interest earnings in the long term. The table below illustrates the interest sensi(cid:415) vity of assets and liabili(cid:415) es at the balance date. Given the proﬁ le of assets and liabili(cid:415) es as at 31 December 2015 and prevailing rates of interest, a 1% increase in markets rates will result in a K32.3 million increase in net interest income, whilst a 1% decrease in rates will result in a K47.8 million decrease in net interest income. Interest sensi(cid:415) vity of assets, liabili(cid:415) es and oﬀ balance sheet items – re-pricing analysis Amounts due to other banks 270,943 32,749 36,559 - All amounts are expressed in K'000 At 31 December 2015 Assets Cash & Central Bank assets Treasury & Central Bank bills Amounts due from other banks Statutory deposits - Central Bank Loans, advances and other receivables from customers Investments Other assets Total assets Liabili(cid:415) es Customer deposits Other liabili(cid:415) es Other provisions Total liabili(cid:415) es Up to 1 month - 441,264 630,079 - - 157,000 27,731 - 1-3 months 3-12 months 1-5 years Over 5 years Non-interest bearing - - - 1,202,466 175,395 1,087,400 642,050 37,470 - - - - - 7,512,150 150,807 535,575 294,081 128,901 1,657 157,000 175,395 1,251,744 840,446 219,023 - - - - 8,804,173 492,538 923,835 2,633,225 1,611,397 6,847,265 536,520 1,501,362 167,803 103,068 - - - - - - - - 154,177 75,525 - - - 1,359,606 - - 1,169,063 3,731,135 4,095 5,388,247 866,111 182,703 7,221,276 569,269 1,537,921 167,803 229,702 6,441,156 Interest sensi(cid:415) vity gap 1,582,897 (76,731) (614,086) 2,465,422 1,381,695 (2,710,021) At 31 December 2014 Assets Cash & Central Bank assets Treasury & Central Bank Bills Amounts due from other banks Statutory deposits - Central Bank Loans, advances and other receivables from customers Investments Other assets Total assets Liabili(cid:415) es - 985,499 320,993 - - 370,203 29,365 - - 821,872 30,295 - - 5,663 - - 5,959,668 138,167 338,406 317,912 - - - - - - 1,684 - 323,213 1,126,131 1,030,694 1,684 7,578 12,139 - 7,267,844 539,419 1,521,364 1,461,845 1,030,694 Amounts due to other banks 259,892 - - - Customer deposits Other liabili(cid:415) es Other Provisions Total liabili(cid:415) es 6,988,751 490,623 751,546 127,461 - - - - - - - - 7,248,643 490,623 751,546 127,461 Interest sensi(cid:415) vity gap 19,201 48,796 769,818 1,334,384 - 210 75,525 - 75,735 954,959 1,355,469 - - 1,251,582 2,844 - 1,385,446 3,995,341 - 4,349,792 756,548 215,966 5,322,306 (1,326,965) There is no material diﬀ erence between the fair value and carrying value of the ﬁ nancial assets and liabili(cid:415) es of Bank of South Paciﬁ c Limited and the Group. The table below analyses the Group’s ﬁ nancial instruments carried at fair value, by levels in the fair value hierarchy. The diﬀ erent levels have been deﬁ ned as follows: • • Level 1 - quoted prices (unadjusted) in ac(cid:415) ve markets for iden(cid:415) cal assets or liabili(cid:415) es. Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). • All amounts are expressed in K'000 At 31 December 2015 Financials assets Equity securi(cid:415) es Non-ﬁ nancial assets Asset held for sale Property, plant & equipment Total Financial liabili(cid:415) es Policy liabili(cid:415) es At 31 December 2014 Financial assets Equity securi(cid:415) es Non - ﬁ nancial assets Assets held for sale Property, plant & equipment Total Financial liabili(cid:415) es Policy liabili(cid:415) es Level 1 Level 2 Level 3 Total - - - - - - - - - - 79,544 1,535 81,079 - - 79,544 35,135 686,325 722,995 35,135 686,325 802,539 - 563,441 563,441 62,430 1,284 63,714 - - 62,430 65,052 662,313 728,649 65,052 662,313 791,079 - 473,753 473,753 There were no changes in valua(cid:415) on technique for Level 3 recurring fair value measurements during the year ended 31 December 2015 (2014 – none). Property, plant and equipment and assets held for sale represents commercial land and buildings that the Group based on valua(cid:415) ons provided by independent valuers. Disposal cost for proper(cid:415) es classiﬁ ed as held for sale is not expected to be material. In the normal course of trading, the Bank and the Group enters into forward exchange contracts. The Bank and the Group does not ac(cid:415) vely enter into or trade in, complex forms of deriva(cid:415) ve ﬁ nancial instruments such as currency and interest rate swaps and op(cid:415) ons. Exposures in foreign currencies arise where the Bank and the Group transacts in foreign currencies. This price risk is minimised by entering into counterbalancing posi(cid:415) ons for material exposures as they arise. Forward and spot foreign exchange contracts are used. 78 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 38. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (con(cid:415) nued) 39. INSURANCE (con(cid:415) nued) Forward exchange contracts outstanding at 31 December 2015 stated at the face value of the respec(cid:415) ve contracts are: All amounts are expressed in respec(cid:415) ve FCY'000 AND K’000 At 31 December 2015 Selling Buying At 31 December 2014 Selling Buying USD (9,979) (45) 9,459 - USD (42,143) 110,701 41,773 (108,795) FCY Kina FCY Kina FCY Kina FCY Kina AUD - - 12,780 - AUD - - - - 39. INSURANCE (a) Net insurance opera(cid:415) ng income All amounts are expressed in K’000 Net insurance income EURO (200) GBP JPY (4,050) (11,000) - - EURO (971) 4,058 - - - GBP (2,450) 3,830 1,000 (4,057) Other (2,681) - 820 - - 3000 - JPY Other - - - - - - - - Total - (45) - Total - 118,589 - (112,852) Consolidated Bank 2015 21,245 2014 15,684 2015 - 2014 - Presenta(cid:415) on of insurance business results in the statement of comprehensive income has been regrouped to more accurately reﬂ ect the insurance business contribu(cid:415) on to shareholder proﬁ ts. Compara(cid:415) ve ﬁ gures have been adjusted to conform to changes in presenta(cid:415) on in the current year. (b) Policy liabili(cid:415) es Key assump(cid:415) ons used in determining this liability are as follows: Discount rates For contracts in Statutory Fund 1 which have a Discre(cid:415) onary Par(cid:415) cipa(cid:415) ng Feature (DPF), the discount rate used is linked to the assets which back those contracts. At 31 December 2015 this was 5.04% per annum (2014: 4.84% per annum), based on current 10 year government bond yields and expected earnings from the investment por(cid:414) olio. For contracts without DPF and Accident Business, a rate of 4.2% per annum was used at 31 December 2015 (2014: 3.9% per annum). These rates were based on the 10 year government bond rate as published by the Reserve Bank of Fiji. Investment and maintenance expenses Future maintenance and investment expenses are based on the budgeted expenses. Future inﬂ a(cid:415) on has been assumed to be 3.5% per annum (2014: 3.5% per annum) for determining future expenses. Whole of Life and Endowment Insurance Term Insurance Accident Insurance 2015 15% 18% 14% 2014 15% 18% 14% Basis of calcula(cid:415) on of surrender values Surrender values are based on the provisions speciﬁ ed in the policy contracts. There have been no changes to surrender bases during the period (or the prior periods) which have materially aﬀ ected the valua(cid:415) on result. Discre(cid:415) onary Par(cid:415) cipa(cid:415) ng Business For most par(cid:415) cipa(cid:415) ng business, bonus rates are set such that, over long periods, the returns to contract holders are commensurate with the investment returns achieved on the pool of assets which provide security for the contract, together with other sources of proﬁ t arising from this business. Proﬁ ts from these policies are split between contract holders and shareholders in accordance with the policy condi(cid:415) ons which allow for shareholders to share in alloca(cid:415) ons at a maximum rate of 20%. For business wri(cid:425) en between 1995 and 1998 the shareholder receives 11% of proﬁ ts. In applying the contract holders’ share of proﬁ ts to provide bonuses, considera(cid:415) on is given to equity between genera(cid:415) ons of policyholders and equity between the various classes and sizes of contracts in force. Assumed future bonus rates included in the liability for the long term insurance contracts were set such that the present value of the liabili(cid:415) es equates to the present value of assets suppor(cid:415) ng the business together with assumed future investment returns, allowing for the shareholder’s right to par(cid:415) cipate in distribu(cid:415) ons. Reinsurance Contracts entered into by the Group with Reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group, are classiﬁ ed as reinsurance contracts. As the reinsurance agreements provide for indemniﬁ ca(cid:415) on by the Reinsurers against loss or liability, reinsurance income and expenses are recognised separately in proﬁ t or loss when they become due and payable in accordance with the reinsurance agreements. Reinsurance recoveries are recognised as claim recoveries under proﬁ t or loss. This is ne(cid:425) ed oﬀ against the claim expenses. Reinsurance premiums are recognised as Reinsurance Expenses. All amounts are expressed in K’000 2015 2014 Policy Liabili(cid:415) es Opening balance Transla(cid:415) on movement Release provisions to claims & opera(cid:415) ng expenses Release provision to fund advance premium Release provision to fund nega(cid:415) ve Regional Shareholder to Retained Earnings Increase in policy liabili(cid:415) es Increase in policy liabili(cid:415) es on revalua(cid:415) on of land Total policy liabili(cid:415) es 473,753 40,319 - - - 34,984 14,385 563,441 481,087 (23,346) (1,394) (5) (80) 17,491 - 473,753 % Acquired 100.0 98.70 100.0 100.0 Taxa(cid:415) on The rates of taxa(cid:415) on enacted or substan(cid:415) ally enacted at the date of the valua(cid:415) on (20%) are assumed to con(cid:415) nue into the future. 40. BUSINESS COMBINATIONS Mortality and morbidity Projected future rates of mortality for insured lives are based on the Fiji Mortality Sta(cid:415) s(cid:415) cs table FJ90-94 Male. These are then adjusted for the Group’s own experience. The mortality rates used was 70% of the FJ90-94 Male table for par(cid:415) cipa(cid:415) ng business in Statutory Fund 1. Rates of discon(cid:415) nuance Best es(cid:415) mate assump(cid:415) ons for the incidence of withdrawal and discon(cid:415) nuance vary by product and dura(cid:415) on and are based on the Group’s experience which is reviewed regularly. Rates used for the long term insurance contracts are as follows: (a) Summary of Acquisi(cid:415) on During the year the Bank acquired the opera(cid:415) ons of the following en(cid:415) (cid:415) es: Acquisi(cid:415) on date 9 July 2015 10 July 2015 10 July 2015 30 October 2015 En(cid:415) ty Westpac Banking Corpora(cid:415) on Cook Islands branch Westpac Bank of Samoa Limited Westpac Bank of Tonga Limited Westpac Banking Corpora(cid:415) on Solomon Islands branch 80 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the Year Ended 31 December 2015 40. BUSINESS COMBINATIONS (con(cid:415) nued) Acquisi(cid:415) on amount Cash Due from other ﬁ nancial ins(cid:415) tu(cid:415) on and regulatory deposits Loans and advances Investment securi(cid:415) es Other assets and intergroup balances Property, plant & equipment Tax receivables and deferred tax assets Deposits Due to other ﬁ nancial ins(cid:415) tu(cid:415) ons Provisions and other liabili(cid:415) es Net iden(cid:415) ﬁ able assets acquired Add: goodwill Net assets acquired for cash considera(cid:415) on (1) Acquired loans and advances K’000 28,444 388,151 573,162 3,080 21,834 19,380 15,772 (785,902) (34,231) (10,722) 218,968 21,103 240,071 The fair value of acquired loans and advances is K573.162m. The gross contractual amount for loans and advances due is K605.028m of which K31.866m is expected to be uncollec(cid:415) ble. (2) Accoun(cid:415) ng policy choice for non-controlling interests The group recognises non-controlling interests in an acquired en(cid:415) ty either at fair value or at the non-controlling interest’s propor(cid:415) onate share of the acquired en(cid:415) ty’s net iden(cid:415) ﬁ able assets. (3) Proﬁ t Contribu(cid:415) on of acquired businesses The acquired businesses contributed revenue of K35.2m and net proﬁ t of K11.7m to the Group for the period from 10 July 2015( Cook Islands, Samoa and Tonga) and 30 October 2015 (Solomon Islands) to 31 December 2015. If the acquisi(cid:415) ons had occurred on 1 January 2015, consolidated pro-forma revenue and proﬁ t for the year ended 31 December 2015 would have been K84.6m and K28.6m respec(cid:415) vely. (b) Purchase considera(cid:415) on - cash ou(cid:414) low Ou(cid:414) low of cash to acquire subsidiary and branches, net of cash acquired Cash considera(cid:415) on Less: cash balances acquired Net inﬂ ow of cash – inves(cid:415) ng ac(cid:415) vi(cid:415) es K’000s 240,071 (416,595) (176,524) Acquisi(cid:415) on-related costs of K8.336m that were not directly a(cid:425) ributable to the issue of shares are included in other opera(cid:415) ng expenses in the statement of comprehensive income and in opera(cid:415) ng cash ﬂ ows in the statement of cash ﬂ ows. 41. EVENTS OCCURRING AFTER BALANCE SHEET DATE There have been no adjus(cid:415) ng events a(cid:332) er the end of the repor(cid:415) ng period. 42. REMUNERATION OF AUDITORS All amounts are expressed in K’000 Financial statement audits Other services Consolidated Bank 2015 2,372 997 3,369 2014 1,919 936 2,855 2015 1,934 900 2,834 2014 1,568 929 2,497 The external auditor PricewaterhouseCoopers is also engaged in providing other services to the Bank and Group as required and as permi(cid:425) ed by pruden(cid:415) al standards. The provision of other services included taxa(cid:415) on services and general training. Independent Auditor’s Report to the shareholders of Bank of South Paciﬁ c Limited Report on the ﬁ nancial statements We have audited the accompanying ﬁ nancial statements of Bank of South Paciﬁ c Limited (the Company), which comprise the statements of ﬁ nancial position as at 31 December 2015, the statements of comprehensive income, statements of changes in shareholders’ equity and statements of cash ﬂ ows for the year then ended, and the notes to the ﬁ nancial statements that include a summary of signiﬁ cant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 December 2015 or from time to time during the ﬁ nancial year. Directors’ responsibility for the ﬁ nancial statements The Directors are responsible for the preparation of these ﬁ nancial statements such that they give a true and fair view in accordance with generally accepted accounting practice in Papua New Guinea and the Companies Act 1997 and for such internal controls as the Directors determine are necessary to enable the preparation of ﬁ nancial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these ﬁ nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the ﬁ nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁ nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁ nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal controls relevant to the Company and the Group’s preparation of ﬁ nancial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the ﬁ nancial statements. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying ﬁ nancial statements: 1. 2. comply with International Financial Reporting Standards and other generally accepted accounting practice in Papua New Guinea; and give a true and fair view of the ﬁ nancial position of the Company and the Group as at 31 December 2015, and their ﬁ nancial performance and cash ﬂ ows for the year then ended. Report on other legal and regulatory requirements The Companies Act 1997 requires that in carrying out our audit we consider and report on the following matters. We conﬁ rm in relation to our audit of the ﬁ nancial statements for the year ended 31 December 2015: 1. we have obtained all the information and explanations that we have required; 2. in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records; and 3. we have no relationship with, or interests in, the Company or any of its subsidiaries other than in our capacities as auditor, and provider of audit-related and taxation services. These services have not impaired our independence as auditor of the Group. Restriction on distribution or use This report is made solely to the Group’s shareholders, as a body, in accordance with the Companies Act 1997. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditor’s report and for no other purpose. We do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed. PricewaterhouseCoopers J. C. Seeto Registered under the Accountants Registration Act 1996 Partner Port Moresby 11 March 2016 PricewaterhouseCoopers, Level 6, Harbour City, Konedobu, Port Moresby PO Box 484, Port Moresby, Papua New Guinea T: +675 321 1500, F:+675 321 1428, www.pwc.com/pg 82 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 83 Shareholder Informa(cid:415) on The following is a summary of per(cid:415) nent issues rela(cid:415) ng to shareholding in the Group. The Cons(cid:415) tu(cid:415) on of BSP may be inspected during normal business at the Registered Oﬃ ce. RIGHTS ATTACHING TO ORDINARY SHARES Partly paid shares The rights a(cid:425) aching to shares are set out in Bank of South Paciﬁ c Limited’s Cons(cid:415) tu(cid:415) on and in certain circumstances, are regulated by the Companies Act 1997, the POMSoX Lis(cid:415) ng Rules and general law. There is only one class of share. All shares have equal rights. Other rights a(cid:425) ached to ordinary shares include: The Directors may, subject to compliance with BSP’s cons(cid:415) tu(cid:415) on, the Companies Act and the POMSoX Lis(cid:415) ng Rules, issue partly paid shares upon which there are outstanding amounts payable. These shares will have limited rights to vote and to receive dividends. General mee(cid:415) ng and no(cid:415) ces Each member is en(cid:415) tled to receive no(cid:415) ce of, and to a(cid:425) end and vote at, general mee(cid:415) ngs of BSP and to receive all no(cid:415) ces, accounts and other documents required to be sent to members under BSP’s cons(cid:415) tu(cid:415) on, the Companies Act or the Lis(cid:415) ng Rules. Vo(cid:415) ng rights At a general mee(cid:415) ng of shareholders, every holder of fully paid ordinary shares present in person or by an a(cid:425) orney, representa(cid:415) ve or proxy has one vote on a show of hands (unless a member has appointed two proxies) and one vote per share on a poll. A person who holds a share which is not fully paid is en(cid:415) tled, on a poll, to a frac(cid:415) on of a vote equal to the propor(cid:415) on which the amount paid bears to the total issue price of the share. Where there are two or more joint holders of a share and more than one of them is present at a mee(cid:415) ng and tenders a vote in respect of the share, the Company will count only the vote cast by the member whose name appears ﬁ rst in BSP’s register of members. Dividends The Directors may from (cid:415) me to (cid:415) me determine dividends to be distributed to members according to their rights and interests. The Directors may ﬁ x the (cid:415) me for distribu(cid:415) on and the methods of distribu(cid:415) on. Subject to the terms of issue of shares, each share in a class of shares in respect of which a dividend has been declared will be equally divided. Each share carries the right to par(cid:415) cipate in the dividend in the same propor(cid:415) on that the amount for the (cid:415) me being paid on the share (excluding any amount paid in advance of calls) bears to the total issue price of the share. Dividend payouts over the last six years are disclosed in the schedule of Historical Financial Performance elsewhere in this Annual Report. Liquida(cid:415) on Subject to the terms of issue of shares, upon liquida(cid:415) on assets will be distributed such that the amount distributed to a shareholder in respect of each share is equal. If there are insuﬃ cient assets to repay the paid-up capital, the amount distributed is to be propor(cid:415) onal to the amount paid- up. Directors Issues of further shares BSP’s cons(cid:415) tu(cid:415) on states that the minimum number of directors is three and the maximum is ten. The Directors may, on behalf of BSP, issue, grant op(cid:415) ons over, or otherwise dispose of unissued shares to any person on the terms, with the rights, and at the (cid:415) mes that the Directors decide. However, the Directors must act in accordance with the restric(cid:415) ons imposed by BSP’s cons(cid:415) tu(cid:415) on, the POMSoX Lis(cid:415) ng Rules, the Companies Act and any rights for the (cid:415) me being a(cid:425) ached to the shares in any special class of those shares. Varia(cid:415) on of rights Appointment of directors Directors are elected by the shareholders in general mee(cid:415) ng for a term of three years. At each general mee(cid:415) ng, one third of the number of directors (or if that number is not a whole number, the next lowest whole number) re(cid:415) re by rota(cid:415) on. The Board has the power to ﬁ ll casual vacancies on the Board, but a director so appointed must re(cid:415) re at the next annual mee(cid:415) ng. Unless otherwise provided by BSP’s cons(cid:415) tu(cid:415) on or by the terms of issue of a class of shares, the rights a(cid:425) ached to the shares in any class of shares may be varied or cancelled only with the wri(cid:425) en consent of the holders of at least three-quarters of the issued shares of that class, or by special resolu(cid:415) on passed at a separate mee(cid:415) ng of the holders of the issued shares of the aﬀ ected class. Powers of the Board Except otherwise required by the Companies Act, any other law, the POMSoX Lis(cid:415) ng Rules or BSP’s cons(cid:415) tu(cid:415) on, the Directors have the power to manage the business of BSP and may exercise every right, power or capacity of BSP to the exclusion of the members. Transfer of shares Share buy backs Subject to BSP’s cons(cid:415) tu(cid:415) on, the Companies Act and the POMSoX Lis(cid:415) ng Rules, ordinary shares are freely transferable. The shares may be transferred by a proper transfer eﬀ ected in accordance with the POMSoX Business Rules, by any other method of transferring or dealing with shares introduced by POMSoX and as otherwise permi(cid:425) ed by the Companies Act or by a wri(cid:425) en instrument of transfer in any usual form or in any other form approved by either the Directors or POMSoX that is permi(cid:425) ed by the Companies Act. The Directors may decline to register a transfer of shares (other than a proper transfer in accordance with the POMSoX Business Rules) where permi(cid:425) ed to do so under the POMSoX Lis(cid:415) ng Rules or the transfer would be in contraven(cid:415) on of the law. If the Directors decline to register a transfer, BSP must give no(cid:415) ce in accordance with the Companies Act and the POMSoX Lis(cid:415) ng rules, give the party lodging the transfer wri(cid:425) en no(cid:415) ce of the refusal and the reason for refusal. The Directors must decline to register a transfer of shares when required by law, by the POMSoX Lis(cid:415) ng Rules or by the POMSoX Business Rules. Subject to the provisions of the Companies Act and the POMSoX Lis(cid:415) ng Rules, BSP may buy back shares by itself on terms and at (cid:415) mes determined by the Directors. Oﬃ cers’ indemni(cid:415) es BSP, to the extent permi(cid:425) ed by law, indemniﬁ es every oﬃ cer of BSP (and may indemnify any auditor of BSP) against any liability incurred by the person, in the relevant capacity, to another person unless the liability arises out of conduct involving lack of good faith. BSP may also make a payment in rela(cid:415) on to legal costs incurred by these persons in defending an ac(cid:415) on for a liability, or resis(cid:415) ng or responding to ac(cid:415) ons taken by a government agency or a liquidator. 84 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 85 SHAREHOLDER INFORMATION Interest in shares in the Bank Directors hold the following shares in the Bank: Director Shares Held T. E. Fox Gerea Aopi R Fleming 44,744 10,000 93,000 % 0.00 0.00 0.00 Registered Oﬃ ce Share Registry Website Bank of South Paciﬁ c Limited PO Box 78, PORT MORESBY Na(cid:415) onal Capital District PAPUA NEW GUINEA Telephone: +675 322 9700 www.bsp.com.pg PNG Registries Limited PO Box 1265, PORT MORESBY Na(cid:415) onal Capital District PAPUA NEW GUINEA Telephone: +675 321 6377 Home Exchange for BSP Shares Home Exchange for BSP Conver(cid:415) ble Notes Port Moresby Stock Exchange Ltd (POMSOX) PO Box 1531 PORT MORESBY Na(cid:415) onal Capital District PAPUA NEW GUINEA Telephone: +675 320 1980 South Paciﬁ c Stock Exchange GPO Box 11689 SUVA FIJI Telephone: +679 330 4130 SHAREHOLDER INFORMATION Twenty largest registered fully paid ordinary shareholders At the 31 December 2015, the twenty largest registered fully paid shareholders of the Company were: 1 2 3 4 5 Kumul Consolidated Holdings Limited Nambawan Super Limited Petroleum Resources Kutubu Limited NASFUND Credit Corpora(cid:415) on (PNG) Limited 6 Motor Vehicles Insurance Limited 7 8 9 PNG Sustainable Development Program Limited IFC Capitaliza(cid:415) on (Equity) Fund LP Interna(cid:415) onal Finance Corpora(cid:415) on 10 Teachers Savings and Loans Society 11 Comrade Trustee Services Limited 12 Lamin Trust Fund 13 Capital Nominees Limited 14 Credit Corpora(cid:415) on (PNG) Limited [CC Finance Ltd] 15 Mineral Resources OK Tedi No. 2 Limited 16 Solomon Islands Na(cid:415) onal Provident Fund 17 Nominees Niugini Limited 18 Catholic Diocese of Kundiawa 19 Southern Highlands Provincial Government 20 Mineral Resources Star Mountains Ltd Other shareholders Share Held 84,311,597 57,592,261 46,153,840 45,318,417 35,843,425 31,243,736 29,202,767 22,796,644 22,796,644 15,317,366 14,456,052 3,518,132 3,375,849 3,000,000 2,890,000 2,500,001 2,369,495 2,165,688 2,000,000 1,975,799 38,697,351 % 18.03% 12.32% 9.87% 9.69% 7.67% 6.68% 6.25% 4.88% 4.88% 3.28% 3.09% 0.75% 0.72% 0.64% 0.62% 0.53% 0.51% 0.46% 0.43% 0.42% 8.28% 467,525,064 100.00% Distribu(cid:415) on of Shareholding At the 31 December 2015, the Company had 6,098 shareholders. The distribu(cid:415) on of shareholdings is as follows: Range (number) 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100, 001 and above Number of Shareholders Number of Shares 5,122 627 95 170 84 6,098 1,313,787 1,276,729 671,813 6,235,689 373,715,449 467,525,064 86 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 87 DIRECTORS’ INFORMATION Name Nature of Interest Sir K. Constan(cid:415) nou, OBE Director Shareholder Member T. E. Fox, OBE, BEc Director 1 , BSP Capital Ltd 1 , Airways Hotel & Apartment Ltd, Lamana Bank of South Paciﬁ c Ltd Hotel Ltd, Lamana Development Ltd, Heritage Park Hotel Ltd, Gazelle Interna(cid:415) onal Hotel Ltd, Oil Search Ltd, Alotau Interna(cid:415) onal Hotel Ltd, Kimbe Bay Hotel Ltd, Grand Paciﬁ c Hotel Ltd, City Centre Development Ltd, Coastwatchers Court Ltd, Waigani Assets Ltd, Southern Seas Investments Ltd, Texas Chicken South Paciﬁ c Ltd. BSP Finance Ltd, Bank of South Paciﬁ c Tonga Ltd, Bank South Paciﬁ c (Samoa) Ltd. Airways Hotel & Apartment Ltd, Lamana Hotel Ltd, Lamana Development Ltd, Texas Chicken South Paciﬁ c Ltd. Australian Ins(cid:415) tute of Company Directors, PNG Ins(cid:415) tute of Directors, Paciﬁ c Games Authority . Anglicare Founda(cid:415) on 1 . 1,6 2 , BSP Capital Ltd , Teyo No. 1 Ltd Bank of South Paciﬁ c Ltd Ltd, BSP Health Care (Fiji) Ltd, BSP Finance (Fiji) Ltd, Future Farms Ltd, Feel Good Investments Ltd. , Akura Ltd, BSP Life (Fiji) 5 Shareholder Bank of South Paciﬁ c Ltd, Teyo No. 1 Ltd, FeelGood Investment Ltd and Akura Ltd. Trustee/Member Ins(cid:415) tute of Na(cid:415) onal Aﬀ airs 8 , PNG Ins(cid:415) tute of Directors. R. Fleming, CSM, MBA, MMGT Director 9 , BSP Capital Ltd, BSP Conver(cid:415) ble Notes Ltd, BSP Rural Ltd, Bank of South Paciﬁ c Ltd BSP Life (Fiji) Ltd, BSP Capital Ltd, BSP Capital Securi(cid:415) es Ltd, Capital Nominees Ltd, BSP Nominees Ltd, BSP Finance Ltd, BSP Finance (PNG) Ltd, BSP Finance (Fiji) Ltd, BSP Services (Fiji) Ltd, BSP Health Care (Fiji) Ltd, Credit & Data Bureau Ltd, Bank of South Paciﬁ c Tonga Ltd, Bank South Paciﬁ c (Samoa) Ltd. Shareholder Bank of South Paciﬁ c Ltd. Trustee/Member Australian Ins(cid:415) tute of Company Directors, PNG Ins(cid:415) tute of Directors, Anglicare Founda(cid:415) on. G. Aopi, CBE, MBA Director Shareholder Member/Trustee Dr. I. Temu, PhD, MEc Director Shareholder Employee Member Bank of South Paciﬁ c Ltd, Oil Search Ltd Marsh Ltd, Hirad Ltd, Wahinemo Ltd, FM Morobe Ltd, CDI Founda(cid:415) on. 7 , Steamships Trading Co Ltd, POMSoX Ltd, Bank of South Paciﬁ c Ltd, Oil Search Ltd Highlands Paciﬁ c Ltd, Melanesian Trustees (ICPNG), Kumul Asset Management. 7 , Hirad Ltd, Wahinemo Ltd, Newcrest Ltd, Ins(cid:415) tute of Na(cid:415) onal Aﬀ airs, Business Council of PNG, PNG Chamber of Mines & Petroleum, Oil Search Health Founda(cid:415) on, PNG Cancer Founda(cid:415) on 1 . Bank of South Paciﬁ c Ltd, Telemu Ltd, Kina Petroleum Ltd, Kumul Petroleum Holdings Ltd, Savi-Tec Ltd. Telstra Ltd, Nau(cid:415) lus Minerals Niugini Ltd. Barrick Gold Ltd. Divine Word University. Name Nature of Interest Sir N. Bogan, KBE, LLB Director G. Robb, BA, MBA, OAM F. Talao, LLM, MPHIL Shareholder Member Director Member Director Member E. B. Gangloﬀ , CPA Director Member A. Mano, BEcon, MSc. (Appointed 29 August 2014) Director Bank of South Paciﬁ c Ltd, In Touch Media Ltd Holdings Ltd, Mapai Transport Ltd, Ahi Holdings Ltd. 1 , Coprez Communica(cid:415) ons Ltd 1 , Coprez In Touch Media Ltd, Coprez Holdings Ltd. 1 Chancellor University of Technology, PNG Tax Review Commi(cid:425) ee Bank of South Paciﬁ c Ltd, BSP Capital Ltd, Bank of South Paciﬁ c Tonga Ltd. Australian Ins(cid:415) tute of Company Directors. Bank of South Paciﬁ c Ltd, BSP Finance Ltd, Bank of South Paciﬁ c Ltd, BSP Finance Ltd, Chayil Investment Ltd, Partnership Paciﬁ c Ltd, Human Rights PNG Inc. External Stakeholders Advisory Panel to Morobe Mining Joint Venture, Australian Ins(cid:415) tute of Company Directors, External Stakeholders Advisory Panel to Morobe Mining Joint Venture, Australian Ins(cid:415) tute of Company Directors. Bank of South Paciﬁ c Ltd, Gangloﬀ Consul(cid:415) ng Ltd, Laurabada Investments Ltd, Borneo Pharmaceu(cid:415) cals Ltd, New Britain Palm Oil Ltd, Dubara Holdings Ltd, Sir Theophilus Constan(cid:415) nou Founda(cid:415) on. BSP Finance (Fiji) Ltd. PNG Ins(cid:415) tute of Directors, Cer(cid:415) ﬁ ed Prac(cid:415) cing Accountants of Papua New Guinea, Business Council of PNG, Ins(cid:415) tute of Na(cid:415) onal Aﬀ airs, Australian Ins(cid:415) tute of Com- pany Directors. 1 , Handy Group Ltd 1 , Speedy Hero Limited 1 , SMA Investments Ltd 3 , 1 1 , Insurance Paciﬁ c Limited , Civpac 1 Hevi Li(cid:332) Group Limited, PNG Air Bank of South Paciﬁ c Ltd, Mineral Resources Development Company Limited Pearl Resort (Fiji) Ltd Ltd Ltd, Leisure Holidays Ltd, Gobe Freight Ltd, Mineral Resource Ok Tedi Ltd, Mineral Resources Star Mountain Ltd, Petroleum Resources Kutubu Ltd, Petroleum Resources Moran Ltd, Petroleum Resources Gobe Ltd, Mineral Petroleum Resources Madang Ltd, Mineral Resources Ramu Ltd, Gas Resources Hides Ltd, Gas Resources Hides 4 Ltd, Gas Resource Angore Ltd, Gas Resource Juha Ltd, Bank South Paciﬁ c (Samoa) Ltd. Shareholder Member SMA Investments Limited. INSPAC Limited. Mendi Muruks Rugby League Commi(cid:425) ee, Patron SHP Cultural Show Society, Cham- ber of Mines & Petroleum. 1Chairman, 2Deputy Chairman, 3Managing Director, 4Execu(cid:415) ve Director, 7General Manager, 8Councillor, 5Company is shareholder of Bank of South Paciﬁ c Limited, or shareholder of company that is shareholder, 6Company has commercial banking facili(cid:415) es with Bank of South Paciﬁ c Limited, 9Chief Execu(cid:415) ve Oﬃ cer 88 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 89 Vulisere Tawaqa, Manager Mobile Lending, BSP Fiji. He is pcitured with his niece, Anareta Sigabalavu, who is named a(cid:332) er his wife. His wife also works with BSP. Management Teams & Directory 90 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 91 MANAGEMENT TEAMS SENIOR MANAGEMENT SOLOMON ISLANDS MANAGEMENT TEAMS Top (L - R): Robin Fleming - Group CEO, Johnson Kalo - Group Chief Financial Oﬃ cer/Deputy CEO, Robert Logia - Group Chief Opera(cid:415) ng Oﬃ cer, Haroon Ali - Group Chief Risk Oﬃ cer, Paul Thornton - Group General Manager Retail Banking. Bo(cid:425) om (L - R): Peter Beswick - Group General Manager Corporate, Eddie Ruha - Chief Financial Oﬃ cer PNG, Rohan George - General Manager Treasury, Aho Baliki, OBE - General Manager Paramount Banking, Giau Duruba - General Manager Human Resources. Standing (L - R): Theresa Kalivakoyo - Financial Controller, Joyce Nukumuna - Relieving Manager Retail Banking Services, Giddings Qiqo - Manager Interna(cid:415) onal Business and Opera(cid:415) ons, Alphonse Toa(cid:415) - Manager Electronic & Branchless Banking, Joan Ramo - Manager Interna(cid:415) onal Opera(cid:415) ons, Temreke Ngira - Transac(cid:415) onal Business Manager. Seated (L - R): Janet Marau - Manager Retail Opera(cid:415) ons, Christopher Robertson - Head of Rela(cid:415) onship Banking, David Anderson - Country Manager, Lyn Toa(cid:415) - Manager Credit Administra(cid:415) on. FIJI COOK ISLANDS Standing (L-R): Rajeshwar Singh - Chief Financial Oﬃ cer, Howard Poli(cid:415) ni - GM Human Resource, William Wakeham - Chief Opera(cid:415) ng Oﬃ cer, Omid Saberi - Chief Informa(cid:415) on Oﬃ cer, Ravindra Singh - GM Retail Bank. Seated (L - R): Alvina Ali - GM Legal, Kevin McCarthy - Country Manager, Cecil Browne - GM Corporate & Interna(cid:415) onal, Ashleigh Matheson - Chief Risk Oﬃ cer. Standing (L - R): Chris Doran - Head of Business Banking, Tokoa Harmon - Branch Manager, Henry Napa - Opera(cid:415) ons Manager. Seated (L - R): Aniva Manu - Ac(cid:415) ng Finance Manager, Janet Samuel - Business Manager, David Street - Country Manager, Massey Mateariki - Manager Risk and Compliance. 92 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 93 PNG BRANCH DIRECTORY MANAGEMENT TEAMS SAMOA BSP CAPITAL LTD MANAGEMENT TEAMS Standing (L - R): Michelle Lemisio - Business Manager, Shirley Greed - Head of Retail, Maryann Lameko-Vaai - Country Manager, Pe(cid:415) Leiataua - Opera(cid:415) onal Risk & Compliance Manager. Seated (L - R): Rod Greed - Project Manager, Nick Rous - Regional Finance Manager, Edward Yee - Head of Business Banking. Standing (L - R): Gheno Minia – Head of Equi(cid:415) es, Yokin Kipie – Head of Opera(cid:415) ons, Igo Douna- Senior System Analyst. Seated (L - R): Willie Konga – Manager Fund Management, Richard Borysiewicz – General Manager, Gerlie Tana- System Administrator. TONGA BSP FINANCE - PAPUA NEW GUINEA Standing (L - R): Josiah Kalfabun - Manager Opera(cid:415) onal Risk, Mele’ana Fiﬁ ta - Manager Global Transac(cid:415) onal Solu(cid:415) on, Salesi Fineanganofo - Business Manager. Seated (L - R): Linita Tu’ihalangingie - Manager Opera(cid:415) ons, Daniel Henson - Country Manager, Emele Hia - Branch Manager, Viliami Vailea - Manager Finance. Standing (L - R): Sharon Andoiye - Manager Risk and Compliance, Jodi Herbert - PNG Country Manager, Barbara Tolaget - Manager Lending Support, Aloysius Ori - Manager Finance and Opera(cid:415) ons, Stephen Taera - Senior Lending Oﬃ cer, Imelda Samba - Senior Lending Oﬃ cer, Anna Puri - Manager Credit, Freda Willyman - Manager Administra(cid:415) on. Seated (L - R): Ranjani Naidu - Business Controller, Christophe Michaud - General Manager, Shauna Paike - Senior Lending Oﬃ cer. 94 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 95 MANAGEMENT TEAMS BSP FINANCE - FIJI L-R: Anal Sen - Collec(cid:415) ons Supervisor, Sudeshwas Ram - Senior Lending Oﬃ cer, Animul Sheryn Khan - Se(cid:425) lement/Conveyancing Oﬃ cer, Krishna Raju General Manager, Lalesh Kumar - Funds Manager, Vimal Raj - Senior Lending Oﬃ cer. BSP LIFE - FIJI OVERSEAS BRANCH DIRECTORY Fiji Country Manager Ba Branch Damodar City Branch Labasa Branch Nadi Branch Namaka Branch Nausori Branch Paciﬁ c Harbour Branch Paciﬁ c House Sales Centre Rakiraki Branch Samabula Sales Centre Suva Central Branch Sigatoka Branch Savusavu Branch Tavua Branch Taveuni Branch Thomson St Branch Valelevu Sales Centre Wes(cid:414) ield Branch Kevin McCarthy Anupa Kumar Manjila Goundar Eka Seduadua Devendran Pillay Madhur Kumar Shailendra Roy Jennifer Morris Shalit Kumar Ronica Prakash Semi(cid:415) Cakacaka Mereani Peters Reginald Kumar Vineeta Prasad Sanjeev Sumer Marica Mara Mohammed Arif Ilai(cid:415) a Waqa Josefa Tuitubou Mobile Lending Manager Mobile Lending Manager Senior Manager Rural Area Manager: West Manager Service: West Area Mgr Central & Northern Mgr Service Central & Northern Manager Compliance Retail Head of Branch Network Vulisere Tawaqa Anand Nair Isikeli Taoi Viliame Varasikete Shalini Kumar Susie Fesaitu Avishek Singh Parveen Chand Kamini Mani 679 321 4454 679 667 4599 679 334 2333 679 881 1888 679 670 5111 679 672 8950 679 347 8499 679 345 2030 679 331 4400 679 669 4200 679 338 7999 679 331 4400 679 650 0900 679 885 0199 679 668 1507 679 888 0433 679 331 4400 679 334 2333 679 666 2466 679 321 4947 679 321 4233 679 321 4922 679 662 7330 679 662 7331 679 323 4235 679 323 4795 679 321 2113 679 323 4236 Solomon Islands Country Manager Auki Branch Gizo Branch Heritage Park Branch Honiara Central Munda Branch Noro Branch Point Cruz Branch Ranadi Branch Cook Islands David Anderson Gordon Ifuimae Clo(cid:415) lda Londeka Joy Vave Glennise Kuper Veronica Analau Tewia Laore Fred Osifelo Tricia Tura Country Manager Head of Business Banking Branch Manager: Medium Branch Manager: Small David Street Chris Doran Tokoa Harmon Rosa Henry 677 21874 677 40484 677 60539 677 21814 677 21222 677 62177 677 61222 677 21874 677 39403 682 22014 682 22014 682 22014 682 22014 Samoa Country Manager Retail Head Savaii Branch Vaitele Branch Tonga Country Manager Nuku’alofa Branch Vava’u Branch Maryanne Lameko - Vaai 685 66115 685 66170 Shirley Greed 685 51208 Taialofa Toala 685 23005 Amelia Iakopo Daniel Henson Emilio Tapueluelu Soseﬁ na Tangitau 676 23540 676 20827 676 71268 Standing (L - R): Munendra Naidu - Chief Financial Oﬃ cer, Michael Nacola - General Manager Distribu(cid:415) on & Marke(cid:415) ng, Vandhna Narayan - General Manager Legal & Compliance, Pramesh Sharma - General Manager Investments. Seated: Malakai Naiyaga - Managing Director. 96 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 97 PAPUA NEW GUINEA BRANCH MANAGERS PAPUA NEW GUINEA BRANCH DIRECTORY Agnes Mark Lae Top Town Albert Burua NGI Manager Albert Seri Wewak Alex Kuna Harbour City Alex Waﬁ mbi Aitape Antonia Dru Gordons Be(cid:425) y Posangat Alotau Bevilon Homuo Bulolo Billy Veveloga Mendi Dennis Lamus Momase Manager Diana Guria Port Moresby Donna Gavu BSP First Gordons Eileen Goviro Popondetta Emily Basil BSP First POM Gabriel Ak Tari Ivy David Daru Jacqueline Mileng Vanimo Jeﬀ rey Singer Waigani BC Joe Makinta Kokopo John Basanu Madang Josephine Komuru Lae Market Julie Warren Buka Kalat Tiriman Lihir Karen George Arawa Lillian Doyango SME Centre Livikonimo Koki Goroka Madeleine Leka Kavieng Marco Hamen Kainantu Mary Koi Bialla Mary Kundi Mt Hagen Mathias Manawo Waigani Drive Maureen Wanu Boroko Meck Kaum Moro Nelson Kerua BSP First HC Nuni Kulu Southern Manager Peter Tikot Rabaul Quillan Nongi Lorengau Ruben Elizah Highlands Manager Rita Singut Kundiawa Robinson Panako Lae Commercial Ruby Patu Kimbe Sibona Kema Vision City Stanerd Wai NCD Manager Suya Yopahafo Porgera Tau Kwarujambi Motukea Theresa Pilamp Wabag Thomas Tembil Kiunga Tony Waningu Tabubil Julie Warren Premium Poni Tukily Aitape Alotau Arawa Bialla Boroko Branch Premium Buka Branch Bulolo Daru Goroka Gordons BSP First Premium Harbour City Branch Premium BSP First Kainantu Kavieng Kimbe Kiunga Kokopo Branch Premium Alex Waﬁ mbi Be(cid:425) y Posangat Karen George Mary Koi 457 2042 641 1284 276 9244 983 1095 Maureen Wanu Sheila John 303 4333 303 4354 973 9042 7202 9203 973 9087 7202 9202 474 5366 645 9062 532 1633 Bevilon Homuo Ivy David Livikonimo Koki Donna Gavu Antonia Dru 302 5245 302 5271 Alex Kuna Bau Kiso Nelson Kerua Marco Hamen Madeleine Leka Ruby Patu Thomas Tembil 305 6151 305 6189 305 6560 537 1065 984 2066 983 5166 649 1073 Joe Makinta Jennifer Tiolam 982 9088 982 9068 Kundiawa Rita Singut 535 1025 Lae Top Town Main Market Commercial BSP First Agnes Mark Josephine Komoru Robinson Panako Elizabeth Gavul Premium Wendy Poka 473 9820 473 9606 473 9877 478 4949 478 4930 478 4923 SUB BRANCH DIRECTORY Aiyura Banz Buin Chuave Daulo Gembogl Gusap Henganoﬁ Higaturu Hoskins Ialibu Kabwum Kamtai Kerema Kerevat Kerowagi Kinim Kikori Komo Konos Kupiano Cribia Albert Kessy Elly Melchior Tania Koiya Kupa Merolyn Sirifave William Koima Michael Yakep Emos James Stephanie Orovo Ruddy Samson Be(cid:425) y Goraiye Rachael Watu Robert Kom Aisi Aua Kilala Kindau Leah Taia Malapun Bannick Leah Kimave Lobe Arawi Maureen Nick Andrew Baine Jnr 7230 8313 7100 9078 7100 7855 7197 6001 7100 6763 7313 4177 7091 1396 7100 7859 7275 1365 7031 2627 7906 0599 7346 1426 7017 5870 7243 4695 7091 2298 648 1530 7190 8231 7100 9077 7100 7861 7290 7057 7163 0597 7362 0760 7197 6006 7288 4140 Lihir Lorengau Madang Branch Premium Mendi Moro Motukea Mt Hagen Branch Premium Poponde(cid:425) a Porgera Port Moresby Branch Premium BSP First Rabaul Tabubil Tari Vanimo Vision City Branch Premium BSP First Kalat Tiriman Quillan Nongi 986 4052 970 9050 John Basanu Ruth Makel Billy Veveloga Meck Kaum Tau Kwarujambi Mary Kundi Beverly Elizah Eileen Goviro Suya Yopahafo Diana Guria Lina Popal Emily Basil Peter Tikot Tony Waningu Gabriel Ak Jacqueline Mileng Sibona Kema Damaris Toran Dianne Sawala 422 2477 422 2621 549 1070 276 1566 321 7699 542 1877 542 1877 629 7171 547 6900 305 7790 305 7943 305 7731 982 1744 649 9179 276 1650 457 1209 300 9100 300 9103 300 9109 Wabag Theresa Pilamp 547 1176 Waigani Banking Centre Branch Premium Jeﬀ ery Singer Lorraine Siaoa Waigani Drive Wewak SME Business Centre Mathias Manowo Albert Seri Lillian Doyango 300 9600 300 9645 302 5300 456 2344 305 6400 Laba Lakurumau Lousia Lufa Maprik Minj Mutzing Namatanai Ningerum Okapa Padipadi Palmalmal Pangia Tambul Telefomin Wakunai Walium Auda Morea Chris(cid:415) ne Gawi Frank Lorna Solomon Vida Kama(cid:415) Chris(cid:415) an Tatu Kui Tai Gordon Robert Mathew Tabakas Mathew Tware Arafat Tovari Alfred Robert Freda Nablup Philemon Kambu Joseph Paul Donna Yarkin Melvin Kusa Brenda Igusam Wapenamanda Yangoru Feta Isin Brendon Iromo Yonki Usik Asino 7197 6008 7197 6005 7031 2617 7100 6761 7168 7815 7020 6834 7100 9076 7100 2488 7197 6007 7031 8497 7374 5623 7090 4463 7323 9181 7197 6003 7100 7863 7255 8421 7100 7856 7106 8357 7024 7330 7100 7862 7127 0000 7180 3933 7185 5768 98 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 99 Melaia Tu’ipulotu, Manager Personal Business, BSP Tonga. She is pictured with her grand daughter Heilala Tu’ipulotu. Corporate Social Responsibility 100 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 101 CORPORATE SOCIAL RESPONSIBILITY CORPORATE SOCIAL RESPONSIBILITY We are part of the communi(cid:415) es in which we operate. Our Corporate Banking and Finance & Planning team hand over a renovated Hohola basketball court to the custodians. At BSP, giving back to the community is part of our culture. We respect, value and support the communi(cid:415) es in which we operate. In everything we do, we strive to be a good corporate ci(cid:415) zen and encourage all employees to volunteer and lend a helping hand where and when they can. Our commitment to the community is evident in a variety of ways. We deliver Community Projects, we sponsor worthy organisa(cid:415) ons and ini(cid:415) a(cid:415) ves, we donate to causes that make a diﬀ erence, we teach children to Go Green and we also go out and teach people, young and old, how to manage money be(cid:425) er. We also bring banking a step closer to communi(cid:415) es. We are not just a Bank and not just a Brand. We are people, we are culture, we are friends, we are changing lives. We are BSP. We are Community. Quick Facts about BSP Community Projects Thankyou very much BSP for the refurbishment of the Hohola Basketball Courts. The new back boards, rings and sea(cid:415) ng are much appreciated. Including the ﬂ ood lights for night games. - Nick Daroa, President, PNG Basketball Federa(cid:415) on. In 2015 we focused on sports related projects, as BSP was Oﬃ cial Sponsor of the 2015 Paciﬁ c Games, Port Moresby. 14 Basketball Courts refurbished across PNG. • Sports items and merchandise also donated. • Some courts also had seats/grandstands upgraded. 09 5.7 39 Is the year BSP introduced the Community Project concept where every branch chose a project in conjunc(cid:415) on with local leaders. Other sport focused projects include: Amount in Kina (Million) BSP has invested in community project throughout PNG since 2009. BSP fully funds these projects focusing on Educa(cid:415) on, Health and Sports. The number of Community Projects delivered by BSP throughout Papua New Guinea in 2015. The majority were sports courts or grounds as it was the year of the Paciﬁ c Games. • Volleyball court, Raba Field, Lihir, New Ireland. • Sports ﬁ eld grandstand, Daru, Western Province. • New Grandstand, Manus Secondary School. • Volleyball & Basketball courts, UPNG, Port Moresby. • Grandstand at PNGFA Sports Field, Bulolo, Morobe. • Basketball & Tennis courts, PNGDF base, Vanimo, WSP. • Tennis & Squash courts, Cameron Club, Alotau, Milne Bay. • Volleyball & Basketball courts, Malaguna Technical School, ENB. • Basketball & Volleyball courts, Bishop Leo Secondary, Wewak, ESP. 100 BSP is 100% commi(cid:425) ed to the people of PNG and the Paciﬁ c. We go Beyond Banking and contribute signiﬁ cantly back into the communi(cid:415) es in which we operate. Our Community Projects typically include: 237 The number of individual projects delivered in PNG from 2009 – 2015. • • 32 in 2009 35 in 2010 • • 36 in 2011 29 in 2012 • • 33 in 2013 33 in 2014 • 39 in 2015      Building new and renova(cid:415) ng libraries, classrooms & school bus stops. Renova(cid:415) ng spor(cid:415) ng facili(cid:415) es & giving sport equipment. Renova(cid:415) ng ablu(cid:415) on blocks or providing water tanks at schools. Renova(cid:415) ng or building parks & playgrounds for children. Renova(cid:415) ng, rebuilding hospitals & health facili(cid:415) es or providing medical equipment. 102 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 103 CORPORATE SOCIAL RESPONSIBILITY CORPORATE SOCIAL RESPONSIBILITY Helping shelter women in need. Our Boroko and Port Moresby Branches helped the City Mission. New playground at the Port Moresby General Hospital , built by our two Waigani Branches in Port Moresby. Playing and laughing is good therapy. Thank you BSP, your support will certainly boost our work in the community and with women. We value the great rela(cid:415) onship we have with such corporate organisa(cid:415) ons like BSP and individuals who support our work each year. - Pastor Ronald Brown, CEO, City Mission. City Mission Project by our Boroko & Port Moresby Branches.  Haus Ruth: Renovated and repainted Kitchen.  Haus Ruth: New footpaths + material to sew curtains for common hall.  Haus Ruth: Cooking utensils, pots + rice cookers.  Haus Ruth: New washing machine, 6 burner gas stove + refrigerators.  Koki Base: New water tank + pump.  Mirigida Farm: Vegetable seeds for plan(cid:415) ng. New Hall at PNG Scout Headquarters Konedobu, Port Moresby • • • Old colonial, run - down Scout Hall demolished. New Scout Hall built for scouts to u(cid:415) lise. Ac(cid:415) vi(cid:415) es at Scouts Hall, keeps boys and youth oﬀ the streets. HANDOVER In Port Moresby, our Strategic Business Units, and our subsidiary companies BSP Finance and BSP Capital also took part in our community projects. • • • • • BSP Finance: A new shaded lunch area at Hohola Chris(cid:415) an School. BSP Capital, Retail and Paramount gi(cid:332) ed Boy Scouts with a brand new Hall. Corporate, Finance/Planning teams renovated the Hohola Basketball courts HR and Risk Management renovated a sec(cid:415) on of the St Johns Gerehu Clinic. Opera(cid:415) ons & IT team extended the outpa(cid:415) ent area, at Tokarara Clinic. More Community Projects...  New water tanks at St Igna(cid:415) us High and Aitape Primary, WSP.  Bus stop and refurbishment of Kaselok Aidpost, Kavieng, NIP.  Renova(cid:415) on at St Johns Clinic, Gerehu, Port Moresby.  Refurbished main market bus stop, Goroka, EHP.  Town bus stop, Arawa, AROB  New community stage, Buka, AROB.  Renova(cid:415) on at Kiunga Hospital, WP.  Bus stop at Pimaga Sta(cid:415) on, Moro, SHP.  New playground at Port Moresby General Hospital.  Classroom maintenance, playground and water tank at Mendi Pre School. MORO, SHP DEMOLISHING THE OLD HAPPY SCOUTS AITAPE, WEST SEPIK ARAWA, BOUGAINVILLE 104 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 105 CORPORATE SOCIAL RESPONSIBILITY CORPORATE SOCIAL RESPONSIBILITY Queen Victoria School Gym. Miss Samoa Pageant. Our teams in Fiji & Solomon Islands also delivered Community Projects in 2015. Some of the ac(cid:415) vi(cid:415) es & organisa(cid:415) ons we supported in 2015 include: Fiji Branch Projects  Samabula: Upgraded playground, Suva Primary School.  Opera(cid:415) ons Centre: New volleyball court, Mokosoi Park.  Thomson St & E-Channels: Upgraded basketball court, Stella Maris Solomon Islands Branch Projects  Pt Cruz: New toilets, Honiara Integrated School.  Auki: Supplied chairs and desks, Aimela Primary.  Noro: Water tank, chairs, bed sheets, pillows, curtains, tubs, Noro Primary School, Suva. Clinic nursery.  Project BEST: New pathway and fencing of homes for the elderly,  Munda: New furniture, curtains, carpet and water tank, EC Kindy Lagilagi Housing Project. School.  Savusavu: New mul(cid:415) - purpose court, Nasavusavu Secondary School.  Taveuni: Construc(cid:415) on of recyclables sor(cid:415) ng sta(cid:415) on.  Wes(cid:414) ield: Upgrading sports ﬁ eld, spectator benches, Nadovu Park.  Microﬁ nance Team: Upgrade the exis(cid:415) ng sports ground, Nadarivatu.  Nausori & Customer Care: Upgraded gym, Queen Victoria School Gym.  E-Channels Support: Renova(cid:415) on to the Chevalier Training Centre.  Rakiraki: Construc(cid:415) on and set up, benches in Rakiraki town.  Labasa: Upgrade gym at Sukanaivalu.  BSP Heritage Park: New water tank to St John Secondary & Primary School.  Gizo: Rubbish bins drums, Gizo Town Council.  Ranadi: New food trolley, digital scale, urn and a cleaner trolley, Children’s Ward, Na(cid:415) onal Referral Hospital. Fiji  Team Fiji to Paciﬁ c Games  Banking on Gold - Rewarding Athletes.  Fiji Nurses Associa(cid:415) on  Annual Conven(cid:415) on of the Fiji College of General Prac(cid:415) (cid:415) oner  Fiji Hotel & Tourism Associa(cid:415) on  Fiji Oral Health Workers Associa(cid:415) on Annual Conference  Fiji Medical Associa(cid:415) on Annual Conference  Fiji Head Teachers Annual Conferenc.  Fiji Correc(cid:415) ons Women’s Conference  Fiji Dental Associa(cid:415) on Conference  Fiji HR Ins(cid:415) tute Annual Conference Solomon Islands  Australia Paciﬁ c Islands Business Council  Australian G’Day Fun Run  SI Red Cross Handicap Centre.  SI Basketball team to the PG Games  Women in Business Associa(cid:415) on (SIWIBA)  G’Day Australian Film Fes(cid:415) val Cook Islands  Aitutaki Golf Open 2015  The Rotary Club of Rarotonga  Rarotonga Sailing Club  Breast Cancer Awareness  Na(cid:415) onal Baby Show  Kids Christmas Giving Tree  Water Safety & Life Saving Council  Rarotonga Squash 2015 Tournament  Cook Islands Maths Quiz Compe(cid:415) (cid:415) on  Rarotonga Road Race  Rarotonga Round Cup Compe(cid:415) (cid:415) on  Tiare Fes(cid:415) val  Cook Islands Triathlon Associa(cid:415) on Samoa  Commonwealth Youth Games  Miss Samoa Pageant 2015  Senese Secondary Program  Cancer Founda(cid:415) on  Tusitala Short Story  Rugby Samoa Academy  Samoa Ins(cid:415) tute of Accountants  Fitness Firm Weight Loss Challenge  Paciﬁ c Literacy Fes(cid:415) val Tonga  Vava’u Billﬁ sh Fishing Tournament  Queen Salote College School  Tonga Golf Associa(cid:415) on  Rugby World Cup 2015  Mo’unga ‘Olive High School  Royal Maopa Choir  Royal Nuku’alofa Club  Mo’onia Netball Tournament  Paciﬁ c Provident Fund & Social Security Forum  Christmas In the Park  WOWS- Laughing Samoans  Vava’u High School  Nuku’alofa Outrigger Canoe Club  Open Heart Interna(cid:415) onal HONIARA BRANCH AUKI BRANCH NORO BRANCH ATHLETES WELCOME, COOK ISLANDS CANOE CLUB, TONGA ROAD RACE, COOK ISLANDS 106 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 107 CORPORATE SOCIAL RESPONSIBILITY CORPORATE SOCIAL RESPONSIBILITY The BSP School Kriket program is one of Papua New Guinea’s most successful junior sports development ini(cid:415) a(cid:415) ves. Buk Bilong Pikinini (BbP) Library at Koki. Our support ensures such libraries are set up. We are very proud to have BSP as our partner in this program and together we can be proud of our achievement. - Gayan Loku, Cricket PNG Game Development Manager At BSP our commitment is to help communi(cid:415) es prosper in all areas we operate in. Some of the ac(cid:415) vi(cid:415) es & organisa(cid:415) ons we supported in 2015 include: BSP Sponsorship & Dona(cid:415) ons focuses on many aspects of the community such as:    Sports ini(cid:415) a(cid:415) ves promo(cid:415) ng healthy, ac(cid:415) ve lifestyle. Educa(cid:415) onal ini(cid:415) a(cid:415) ves promo(cid:415) ng literacy. Na(cid:415) on building & encouraging investment.    Art & Cultural ac(cid:415) vi(cid:415) es. Health & Environmental ini(cid:415) a(cid:415) ves. Humanitarian and charitable ini(cid:415) a(cid:415) ves. Some major sports sponsorships are: BSP School Kriket Program  K300, 000 pa + K100, 000 for equipment.  150,543 par(cid:415) cipants, 235 schools, 111 clinics in 2015.  BSP School Kriket Blasts reached addi(cid:415) onal 5,500 children.  Awarded the best Overall Development Program in the ICC Regional (EAP) Awards in 2009, 2011, 2012, 2013 and 2014. BSP Junior Golf Development  Sponsorship of K200,000 to PNG Golf Associa(cid:415) on for junior golf development. BSP Na(cid:415) onal Aqua(cid:415) c Excellence Program  The Papua New Guinea Swimming Inc receives K80, 000 for the BSP Na(cid:415) onal Aqua(cid:415) c Excellence Program.  Since 2004, more than 1,200 young swimmers have gone through this program.  Young swimmers set goals, achieve results and become part of the BSP Na(cid:415) onal Aqua(cid:415) c Excellence Program.  Mo(cid:415) vates volunteers to pursue careers as coaches, administrators, and technical oﬃ cials in swimming.  Soim Kala Art Show  Buk Bilong Pikinini  Hospital Poroman Founda(cid:415) on  Salva(cid:415) on Army  City Mission  PNG Red Cross  Miss South Paciﬁ c Pageant  Coali(cid:415) on for Change  Sir Buri Kidu Heart  Sorop(cid:415) mist Interna(cid:415) onal  Susu Mamas  Transparency Interna(cid:415) onal PNG  PNG Cancer Founda(cid:415) on  Australian Doctors Interna(cid:415) onal  BSP School Kriket Program launch  PNG Paralympic  PNG Swimming Inc  BSP Jnr Golf Development Program  PNG Investment Summit  Australia PNG Business Forum  Business Advantage Investment Summit  CPA Conference  NDB Entrepreneurial Youth Summit  PNG Human Resource Ins(cid:415) tute   PNG Medical Symposium Ins(cid:415) tute of Internal Audit Conference  Morobe Agricultural Show  Goroka Show  Warwagira & Mask Fes(cid:415) val  Sepik River Crocodile Fes(cid:415) val  Frangipani Fes(cid:415) val  Kenu & Kundu Fes(cid:415) val  Madang Fes(cid:415) val  Bulolo Show  Women’s Doctors Associa(cid:415) on  BPNG Young Minds Savings Campaign Some Organisa(cid:415) ons BSP Supports The Institute of Internal Auditors PNG Chapter  A notable product of the program is PNG’s ‘super ﬁ sh’ and BSP Brand Morobe Province Agricultural Society Inc Ambassador Ryan Pini. BSP supports Paralympics, Canoeing, Sailing, Fishing and Football among many other worthy ac(cid:415) vi(cid:415) es and ini(cid:415) a(cid:415) ves... ANNUAL HOSPITAL VISITS CHARITABLE WALKS HUMANITARIAN CAUSES HR DEVELOPMENT SUPPORTING CULTURAL EVENTS PROMOTING LEARNING & LITERACY 108 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 109 CORPORATE SOCIAL RESPONSIBILITY CORPORATE SOCIAL RESPONSIBILITY BSP HQ staﬀ in Port Moresby wai(cid:415) ng for the Paciﬁ c Games Baton. Cook Islanders par(cid:415) cipa(cid:415) ng in the Annual School Clean Up Day. As Oﬃ cial Sponsors, BSP played a signiﬁ cant role in ensuring the success of the XV Paciﬁ c Games, Port Moresby 2015. Here are some of the things we helped out with: We are demonstra(cid:415) ng socially responsible ac(cid:415) ons which posi(cid:415) vely impact the community. Our major Go Green ac(cid:415) vity is the Annual School Clean Up Day. Here are 2015 Highlights: BSP staﬀ allowed (cid:415) me oﬀ to join the volunteer program. BSP staﬀ seconded to the Games Oﬃ ce. Bank products for Games Oﬃ ce staﬀ and training for Games Finance staﬀ . BSP had the largest ac(cid:415) va(cid:415) on/Paciﬁ c Games Sponsor zone for spectators. BSP issued a limited edi(cid:415) on KunduCard. Supporter giveaways included Sombreros and hand fans. Promoted Games via Adver(cid:415) sing, Billboards and Merchandise. Branch at Games Village for FX money transfers and EFTPoS & ATM at Venues.          Merchandise gi(cid:332) s for 6,000+ PNG and visi(cid:415) ng Paciﬁ c Island Athletes.  Developed standalone Ticke(cid:415) ng program, sold at 17 BSP Branches na(cid:415) onwide. BSP has fully funded and led clean ups in PNG, Fiji & Solomon Islands since 2010. 1000s of school children par(cid:415) cipated in the School Clean Up. BSP supports the Annual School Clean Up with T Shirts, Caps, Rubbish bags, and gloves. Our staﬀ lead the Clean Up ac(cid:415) vi(cid:415) es and provide logis(cid:415) cal support.      We support clean up ac(cid:415) vi(cid:415) es in communi(cid:415) es, our staﬀ o(cid:332) en lend a helping hand.  We have branch based Go Green Ambassadors who visit schools and communi(cid:415) es and promote environmental responsibility.  We support local authori(cid:415) es and help provide rubbish drums.  We recycle tonnes of waste paper every year.  We are teaching children the value of keeping their environment clean, green & healthy.  Our message is to Reuse, Recycle and Respect our environment. I say with much conﬁ dence that with BSP’s support we now have the capacity to dream big about the range of possibili(cid:415) es for engagement, par(cid:415) cipa(cid:415) on and for delivering the best ever Paciﬁ c Games - Paciﬁ c Games Organising Chairperson, Emma Waiwai. BSP WANTOKS SPECTATORS HAVING FUN BATON RELAY PNG SAMOA TONGA 110 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2015 111

Continue reading text version or see original annual report in PDF format above