2018 Year of the APEC CEO Summit
Chairman’s Report
A Brief History of BSP
Board of Directors
Group CEO’s Report
Group Historical Summary
Contributions by BSP to PNG
Strategic Business Unit Reports
Offshore Branches
Subsidiaries
Corporate Governance
Financial Statements
• Directors’ Report
• Statements of Comprehensive Income
• Statements of Financial Position
• Statements of Changes in Shareholders Equity
• Statements of Cash Flow
• Notes to the Financial Statements
Independent Auditor’s Report
Shareholder Information
Directors’ Information
Management Teams & Directories
Corporate Social Responsibility
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Our Vision
To be the leading financial services provider in
our chosen markets, helping customers, staff,
shareholders and communities prosper.
Our Mission
To create value for our stakeholders by delivering innovative and
cost effective financial services.
Key Features of BSP Strategy
A Focus on Sales & Service
High Performing Teams
Operational Excellence
Profitable Growth
OUR CORE VALUES
INTEGRITY
We are honest, committed, trustworthy and reliable in our dealings
with our customers and each other.
LEADERSHIP
We inspire, we change, and we live our values, and lead by example.
PROFESSIONALISM
We commit ourselves to continual self-developement to achieve
standards of excellence in our performance.
PEOPLE
We respect and value our people and our customers.
QUALITY
We are commited to excellence whilst striving for continous improvement
in products and services.
COMMUNITY
We respect, value and support the communities in which we operate.
TEAMWORK
We work with, and for, each other; we progress together.
APEC Haus, Ela Beach, Port Moresby
Photo by Rocky Roe
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BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 OUR REACH IN THE ASIA-PACIFIC REGION
83 Branches
BRANCH
45 Sub-Branches
SUB-BRANCH
591 Agents
529 ATMs
13,042 EFTPoS
4,307 Staff
STAFF
APRA Disclaimer:
BSP is not authorised under the Banking Act 1959 (Commonwealth of Australia) and is not supervised by the Australian Prudential Regulation
Authority (APRA). BSP’s products are not covered by the depositor protection provisions in section 13A of the Banking Act 1959 and will not be
covered by the financial claims scheme under Division 2AA of the Banking Act 1959.
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BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Sir Kostas Constantinou, OBE
Chairman
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BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 CHAIRMAN’S REPORT
The BSP Group has again delivered a successful financial result for 2018, guided by our vision to be the leading financial services
provider in our chosen markets, helping customers, staff, shareholders and communities to prosper.
In 2018, BSP provided services to 2.4 million account holders, employed
4,307 staff, paid K597.4 million in dividends to our shareholders compared
to K521.9 million in 2017 and paid K390.3 million in taxes to the PNG
government compared to K287.5 million in 2017.
BSP Group’s audited net profit after tax for 2018 is K844.1 million, an
increase of 11.5% on 2017’s result of K757 million. Total assets have grown
by 3% to K23.050 billion.
Satisfyingly each one of BSP’s local and overseas businesses has delivered
stronger profits in 2018, despite being presented various macroeconomic
challenges. Our 2018 financial year marks the third successive year BSP
has delivered double digit profit growth and since 2013 a compound
annual growth rate of 14.2%.
Notwithstanding the strong growth
in 2018, we maintained our
commitment to financial strength across all capital, funding and liquidity
metrics. We finished 2018 with a capital adequacy ratio of 22.9% compared
to 24.5% in 2017 and a leverage ratio of 10.3% that remain well in excess of
the 12% and 6% prudential requirements respectively.
With the global economy facing some headwinds as a consequence of the
US and China trade war and Brexit uncertainties, coupled with the modest
economic growth in most of the countries in which BSP operates we
experienced challenging conditions during 2018. The Pacific subregion’s
growth is forecast to be 1.1% for 2018, well below the 2.9% outcome in
2017.
Pleasingly LNG prices rose by 35% over 2018, however crude oil prices did
fall in late 2018. PNG’s economy grew by an estimated 0.3% in 2018, well
down on the 3.0% in 2017.
The decline was largely due to the negative effect of the Highlands
earthquake which had a severe impact on the region’s communities as
well as on production in the oil and gas, mining and quarrying sectors. BSP
donated K1 million to the Government appeal fund as well as ensuring
our branches were still operating in the communities affected by the
earthquake. The Board thanks staff in those areas who worked to great
effort to make banking services available to the communities.
Encouragingly, PNG’s economic growth is expected to rebound by between
3.0% and 5.1%, according to leading independent agencies such as the Asia
Development Bank, World Bank and International Monetary Fund.
In 2018, Papua New Guinea also successfully hosted the APEC forum in
Port Moresby in November, 2018, which was the first time since Papua
New Guinea joined the APEC group of companies in 1993. At this meeting
Australia, Japan, New Zealand and the United States agreed to work
together with Papua New Guinea to support its enhanced connectivity
and the goal of connecting 70% of its population to electricity by 2030.
Currently only about 13% of Papua New Guinea’s population have reliable
access to electricity. The Papua New Guinea Electrification Partnership
is intended to focus on the importance of principles-based, sustainable
infrastructure development.
BSP Offshore Businesses 2019 growth expectations are on balance an
improvement over 2018, given the projected material economic growth
increases of Samoa and Tonga, which experienced little growth in 2018.
GDP REAL GROWTH PROJECTIONS
2018
2019
World
Bank
IMF
ADB
Avg.
World
Bank
IMF
ADB
Avg.
0.3%
-1.1%
3.5%
3.2%
3.8%
0.5%
3.6%
3.2%
1.8%
0.5%
2.9%
-0.3%
-0.1%
5.1%
3.8% 3.0%
4.0%
3.4%
3.4%
3.4% 3.3%
3.4%
3.5%
1.2%
1.3%
3.5% 3.0%
3.3%
3.2% 2.0%
2.6%
5.5% 1.9%
3.7%
Country
PNG
Fiji
Vanuatu
Samoa
Tonga
Solomon Islands
3.4%
3.4%
3.2%
3.3%
2.7%
2.9% 3.0%
2.9%
Cook Islands
3.5%
3.5%
3.0%
3.0%
Cambodia
7.1%
6.9%
7.0%
7.0%
6.8%
6.8% 7.0%
6.9%
Cambodia, Cook Islands, Fiji and Solomon Island reported relatively strong
levels of growth, while Tonga, Samoa and Vanuatu reported moderate to
low growth in 2018. Notwithstanding this, demand fundamentals and
activity indicators remain positive hence BSP remains optimistic about its
future growth prospects.
Standard & Poor’s Global (S&P), in its ratings assessment of the BSP
released on 30 April 2018, maintained BSP’s stand-alone credit profile of
‘b+’, which is an endorsement of BSP’s strong underlying performance.
However, as a consequence of S&P’s lowering of Papua New Guinea’s
sovereign rating to ‘B’, BSP’s overall credit rating was also aligned to ‘B’.
S&P’s rationale for BSP’s overall ‘B’ rating reflects its view that BSP is
exposed to PNG’s economic and operating conditions.
As reported last year, BSP has embarked on two strategically important
initiatives which will substantially shape the business of banking in the
countries in which we operate for many years to come; the implementation
of a new Core Banking System and Digital Banking.
The new Oracle FLEXCUBE system will see BSP having one common
operating system, including ancillary systems for Treasury, loan origination,
Mobile Banking, Internet Banking, etc. for the very first time since BSP
commenced its expansion strategy. Further, it will underpin our digital
product offering in the years to come, ensuring our market leading position
in the markets we operate in.
The banking landscape globally is changing at a rapid pace as a result of
advances in telecommunications and the ubiquitous availability of mobile
phones. In response to this, technology companies and entrepreneurs
are developing mobile applications that make it easier for individuals and
businesses to make payments for goods and services, and provide other
financial services which were until recently, only provided by licenced
banks.
Recognising this change in the global payments and financial services
landscape, the Board identified the need to establish dedicated Digital
Banking Strategic Business Unit to ensure that BSP remains at the forefront
of the financial services sector in our chosen markets. Consequently, Ms
Nuni Kulu has been appointed as the General Manager Digital Banking
effective as of 1 January 2019.
I would also like to congratulate Mr Aho Baliki, our General Manager
Paramount Banking, who retired earlier this year after more than 43 years
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BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 of service. Mr Baliki is the quintessence of a hardworking, committed
and honest individual who earns the respect of all his peers including
customers who are high ranking government officials, public and private
sector executives. I thank Mr Baliki for his contribution to PNG banking
and BSP. He has been a passionate advocate of citizen staff development
and promoter of capabilities of promising staff. We wish him and his wife
Veronica all the very best in their future endeavours.
I would also like to acknowledge the contribution of Kevin McCarthy, our
Fiji Country Manager, who retired late last year after 9 years of service in
Fiji. Under Kevin’s leadership our Fiji operations has grown from strength
to strength. Haroon Ali was selected to succeed Kevin, and returns to Fiji
after serving as BSP’s Group Chief Risk Officer since July 2013.
BSP Group has produced yet another year of very good results in 2018,
at a time when economic conditions in our region have been somewhat
lower than global GDP - especially in our home market of PNG. The BSP
Group has once again outperformed its major competitors. Staff and
management are commended for their efforts in producing these results
and maintaining BSP Group’s leading position in the South Pacific Region.
The coming year will continue to present challenges, however
notwithstanding some challenging economic conditions, I remain confident
that BSP will perform to expectations. The support of its stakeholders, its
competitive operations, and the effective execution of our strategy will
enable BSP Group to produce another successful year in 2019.
Sir Kostas Constantinou, OBE
Chairman
Chairman Sir Kostas and GCEO Robin Fleming
at the APEC CEO Summit 2018
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BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 A BRIEF HISTORY OF BSP
BSP is the leading bank in PNG and has a long and proud track record of serving the needs of customers in PNG and other countries across the South
Pacific. BSP’s operations date back to 1957, when it was founded in Port Moresby as a branch of National Bank of Australasia Ltd. In 1993, a consortium
of PNG businesses acquired the bank and created the first and only PNG private sector owned bank at that time.
BSP merged with the state-owned Papua New Guinea Banking Corporation (PNGBC) in 2002, creating the largest bank in PNG. Other acquisitions followed,
including Habib Bank in Fiji in 2006, National Bank of Solomon Islands in 2007 and Colonial Bank and Colonial Fiji Life Insurance Ltd in 2009. In 2015 and
2016, BSP completed the acquisition of Westpac’s operations in Cook Islands, Samoa, Solomon Islands, Tonga and Vanuatu, significantly expanding and
strengthening BSP’s geographic reach. Today, BSP continues to be a leading force in PNG and the South Pacific markets with the largest branch network,
and is a pioneer in bringing financial innovation and technology to the region.
KEY MILESTONES IN BSP’S DEVELOPMENT
1957
1974
1993
2002
2003
2005
2006
2007
2009
Commenced operations in Port Moresby on 1 May 1957 as a branch of National Bank of Australasia Ltd.
BSP incorporated as Bank of South Pacific Ltd, a wholly owned subsidiary of the Australian parent.
National Investment Holdings Ltd, a nationally owned company, acquired BSP from National Australia Bank.
Merged with the state owned Papua New Guinea Banking Corporation (PNGBC).
BSP is listed on the Port Moresby Stock Exchange.
Standard & Poor’s issued an inaugural credit rating for BSP of B+.
Established a presence in Fiji through the acquisition of Habib Bank Ltd’s Fiji operations, which were rebranded to BSP.
Acquired the National Bank of Solomon Islands Ltd and rebranded to BSP.
Acquired Colonial Bank and Colonial Fiji Life Insurance Ltd from Commonwealth Bank of Australia and rebranded to BSP
and BSP Life, respectively.
2014 - 2015
2015 - 2016
Commenced BSP Finance (Fiji) Ltd in 2014 and commenced BSP Finance (PNG) Ltd in 2015.
Acquired Westpac’s operations in Solomon Islands, Cook Islands, Samoa, Tonga and Vanuatu for A$125 million.
2017
2018
Commenced Asset Finance operations in May 2017, in Cambodia (rebranded to BSP Finance Cambodia Ltd in January 2018) and commenced BSP
Finance (Solomon Islands) Ltd in September 2017. Provisional licence issued in November 2017 for a life insurance company (BSP Life (PNG) Ltd).
Commenced a life insurance business in Papua New Guinea on 2nd January, 2018.
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BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 BOARD OF DIRECTORS
SIR KOSTAS G. CONSTANTINOU, OBE
Chairman. Director since April 2009. Appointed Chairman February 2011.
Sir Kostas is a prominent business figure in Papua New Guinea (PNG), holding a number of high level public sector and private
sector appointments. He is Chairman of various companies, including Airways Hotel and Apartments Ltd, Lamana Hotel Ltd,
Lamana Development Ltd and Air Niugini Limited. He is a Director of Alotau International Hotel, Gazelle International Hotel
in Kokopo, Loloata Island Resort Ltd, City Centre Development Ltd, Coastwatchers Court Ltd, Waigani Assets Ltd, OPH Ltd,
Rangeview Heights Ltd in Papua New Guinea, Heritage Park Hotel in Honiara, Taumeasina Island Resort in Samoa, Good Taste
Company in New Zealand, Oil Search Ltd, Southern Seas Investments Ltd, Texas Chicken South Pacific Ltd & K G Property Ltd.
Sir Kostas is also Vice President of the Employers Federation of PNG, Honorary Consul for Greece and Cyprus in Papua New
Guinea and Trade Commissioner of Solomon Islands to PNG.
ROBIN FLEMING, CSM, MBA, MMGT
Chief Executive Officer. Director since April 2013.
Robin Fleming was appointed CEO of Bank of South Pacific Ltd in April 2013. Before his appointment as CEO, he had been
Deputy CEO and Chief Risk Officer since 2009. Prior to that, Mr Fleming held senior executive roles as Chief Risk Officer,
General Manager Corporate & International, and Head of Risk Management with BSP. Prior to the merger of BSP and PNG-
BC, Mr Fleming held senior management roles with PNGBC. He has worked in PNG for over 35 years and holds an MBA
and a Master of Management from Charles Sturt University. Mr Fleming was made a Companion of the Star of Melanesia
(CSM) in 2015 by the PNG Government for services to banking and the community.
FREDA TALAO, LLB, LLM, MPHIL, MAICD
Non - Executive Director. Director since April 2012.
Freda Talao is a lawyer and development specialist. Previously she was a member of the External Stakeholders Advisory
Panel (ESAP) to the Hidden Valley Joint Venture (HVJV) Mine owned by Newcrest Ltd and Harmony Gold in Wau, PNG,
Deputy Registrar National Court, Executive Director, PEACE Foundation Melanesia and Senior Development Specialist with
AUSAID. She was formally a consultant to Australian Law Firm Holding Redlich in Brisbane. Ms Talao’s previous Board
roles includes Director on former Civil Aviation Authority (CAA), PNG Mama Graun Conservation Trust Fund, National
Airports Corporation (NAC), Airport City Development Limited (ACDL) Board and the Individual and Community Rights
Advocacy Forum (ICRAF). She was one of six PNG women nominated for the Nobel Peace Prize in 2005 as part of the 1000
Peace Women Project and awarded for her work with women, children, youth and communities. Ms Talao holds a Law
Degree from University of Papua New Guinea, a Masters in Law from Bond University, Qld (LLM), a Master of Philosophy
in Law from University of Queensland (MPHIL) and a Diploma in Business from the Southern Cross University. She is also a
member of the Australian Institute of Company Directors (AICD).
GEOFFREY J. ROBB, BA, MBA, OAM, MAICD, GAICD
Non - Executive Director. Director since April 2012.
Geoffrey Robb is a highly qualified and experienced banker having occupied several senior executive positions including
Head of Resource Finance at Bank of America, Global Head of Acquisition Finance and Head of Complex and Strategic
Transactions with ANZ Banking Group. As Head of Bank of America in Melbourne, he led resource financings with BHP,
CRA, Elders Resources, Bougainville Copper, Ok Tedi and Porgera. He holds MBAs from the International Management
Institute 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
and Bank South Pacific Tonga Ltd.
ERNEST BRIAN GANGLOFF, CPA, MAICD, MIIA, PNGID
Non - Executive Director. Director since November 2013.
Ernest Gangloff is an Accountant, registered with CPA PNG and the Accountants’ Registration Board. Ernest 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 positions. Mr. Gangloff retired as Partner with Deloitte in May 2013,
and established Gangloff Consulting in June 2013.
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BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 AUGUSTINE MANO, BEcon, MSc
Non - Executive Director. Director since August 2014.
Mr Augustine Sanga Mano was appointed the Managing Director & CEO of Mineral Resources Development Company
in March 2008. MRDC is a state-owned entity that manages all Royalties and Equities for Landowners and Provincial
Governments in Petroleum and Mining Projects in PNG. Mr Mano graduated with double Degrees in Economics and Arts
majoring in Environmental Science from the University of Papua New Guinea and holds Master of Science in Petroleum
Economics from Dundee University, Scotland in the United Kingdom. Prior to his appointment, Mr Mano has been involved
in the civil constructions, real estate, transport and insurance. He has been involved with the Petroleum industry in various
capacities before his appointment as Managing Director. He currently serves as Director on the board of MRDC, Mineral
Resources Star Mountains, Mineral Resources Ok Tedi No. 2, Mineral Resources Ramu, Petroleum Resources Kutubu,
Petroleum Resources Moran and Petroleum Resources Gobe and many other subsidiaries of MRDC in Mining and Petroleum
Projects in PNG by virtue of his position. He is Chairman of the Pearl South Pacific Resort in Fiji, Star Mountains Plaza and
Taumeasina Resort in Samoa. He is also serving as a Director on the boards of Hevilift, PNG Air, Bank South Pacific and Ok
Tedi Mining Limited. He is also a Director in other private companies.
ARTHUR SAM, BComm, CPA, MAICD, GAICD
Non- Executive Director. Director since 2016.
Arthur Sam is a qualified and experienced accountant, registered under CPA PNG. He holds a Bachelor of Commerce from
the University of Papua New Guinea, and a Graduate of the Australian Institute of Company Directors. He is the Audit and
Managing Partner of Sam Kiak Tubangliu Certified Practising Accountants. Mr Sam previously worked with global accounting
firms - PricewaterhouseCoopers, Deloitte and Ernst & Young, in managerial roles specialising in external and internal audit
and risk management. Prior to joining the Board of BSP, he served on the NASFUND Board Audit and Risk Committee and
the PNG Accountants Registration Board. Mr Sam has also been a member of the BSP Board Audit & Risk Compliance
Committee since June 2013.
FAAMAUSILI DR. MATAGIALOFI LUA’IUFI, BA, MSC, PhD
Non-Executive Director. Director since December 2016.
Faamausili Dr Lua’iufi holds a Doctorate in Philosophy in Management, a Master of Science (Management Sciences), a
Bachelor of Arts, in Sociology and Political Science and Diplomas in Training and Management. She served in the Samoa
Public Service for 28 years and close to 12 of those years as the Chief Executive Officer of the Public Service Commission.
Dr Lua’iufi is currently the Principal Director of Paradise Consulting established in 2008 after resigning from the CEO position
of the Samoa Public Service Commission. As a full time consultant she specialises in the fields of Public Sector governance,
organisation development and human resources management and to date has undertaken more than 50 assignments
in Samoa, Solomon Islands, Niue, Tonga, Cook Island, Tuvalu, Tokelau, Papua New Guinea and Nigeria. Faamausili Dr
Lua’iufi has extensive board experience and is a member of the Council and the Executive Committee of the National
University of Samoa, Samoa Institute of Directors and the British Institute of Consulting. She has actively participated in
many public sector Councils and Policy Committees in Samoa, Asia Eastern Region and the Commonwealth. She was the
Pacific Residential Fellow of the Australia New Zealand School of Government (ANZSOG), responsible for the development
of emerging young Pacific Public Sector leaders (PACE).
STUART DAVIS, LLB, GAICD
Non-executive Director. Director since August 2017
Stuart Davis is currently a Non-Executive director and Chairman of the Audit and Risk Committee of ASX 200 company
NextDC Ltd, which builds and operates Data Centres in Australia, Non-Executive Director and Chairman of the Risk
Committee of PayPal Australia Ltd, and Non-Executive Director and member of the Audit and Risk Committee of Bank South
Pacific. Mr Davis previously was CEO of HSBC Bank in India from 2009 to 2012, one of the largest foreign banks in India
with staff of 8,000 and pretax earnings in excess of USD800 million. Prior to that appointment, he was CEO of HSBC Bank in
Australia from 2002 to 2009 and CEO of HSBC in Taiwan from 1999 to 2002, having joined the HSBC Group in 1981. Mr Davis
previously served as a member of the Australia Bankers Association from 2003 to 2009, being Deputy Chairman from 2006
to 2009, was Chairman of the British India Chamber of Commerce in Mumbai and Chairman of the Taiwan British Chamber
of Commerce in Taipei. He holds a Bachelor of Law Degree from the University of Adelaide and is a Graduate of the AICD.
ROBERT BRADSHAW, LLB
Non-executive Director. Director since September 2017
Robert Bradshaw was appointed to the BSP Board in September 2017. He is a Lawyer by profession, admitted to practice
law in Papua New Guinea (PNG) in 1995. Mr Bradshaw holds a Bachelor of Laws from the University of PNG and has
practised law for over 20 years. He was formerly a Partner in the firm Blake Dawson Waldron (now Ashurst). He commenced
practice on his own as Bradshaw Lawyers in 2005. Mr Bradshaw has been involved in different areas of law, particularly in
resource development, industrial relations, banking and finance and commercial litigation.
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BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Robin Fleming, CSM
Group Chief Executive Officer
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BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 GROUP CEO’S REPORT
It is with great pleasure that I am able to report that 2018 has once again been a successful year for the BSP group with a
record net profit after tax of K844 million. As indicated by our Group Chairman Sir Kostas Constantinou OBE, BSP’s outcome for
2018 represented an increase of 11.5% on 2017 with improved performances in every country and every business. Viewed in
isolation BSP’s financial performance is impressive enough with a “Compound Average Growth Rate” (CAGR) of 14.2% over the
past five (5) years. The results are all the more impressive when considered in light of the results of our competition, and BSP
has outperformed our competitor banks in every country with our CAGR’s exceeding that of our competitors in every market.
Sir Kostas has spoken in his report about the economic conditions in the
countries in which BSP operates and whilst GDP growth was positive in
all countries, growth in our region was lower than global GDP. Our home
country, Papua New Guinea, was significantly affected, both in human
terms and economic terms, by a devastating earthquake that measured 7.5
at the end of February 2018. The earthquake struck in the heavily populated
highlands region and in addition to loss of life, with over 200 fatalities,
destruction of homes and food gardens, damage to highways, roads and
the Komo airport, PNG LNG facilities were shut down for almost two (2)
months to permit a comprehensive assessment of damage and to ensure
that production could recommence in a risk free and safe manner. Mines at
Ok Tedi and Porgera were also affected but not to the extent of PNG LNG.
The PNG economy experienced both a contraction in revenue in the first
half of 2018 as a consequence of the earthquake and also in relation to
unbudgeted commitments of expenditure to facilitate emergency relief and
reconstruction activities. BSP led the non-mining sector in its response to
the earthquake and contributed K1 million to the Governments earthquake
appeal, which recognised by the widespread nature of the earthquake and
the number of people whose lives were affected by this natural disaster.
Our financial performance in PNG was driven by increased net interest
income as a result of growth in loans and advances, which also reflected
in BSP’s market share growth from 59% to 61%. Both Corporate and Retail
contributed to the increase in our lending and our staff in those areas are to
be commended for their efforts. The increase in our housing loan portfolio
in particular, and especially our first home owner loans, was pleasing not
so much for the quantum of the increase, or its contribution to interest
income, but because home ownership in itself and more so in a developing
economy is both an indicator of wealth creation for individuals; and it
signals change in the nature of property rights, which is a precursor to
diversified economic growth.
BSP has not increased its fees for over five (5) years and during 2018 an
ongoing review of fees, and specifically a review associated with our retail
product offerings, was undertaken which will see our Retail customers
benefit from full year fee savings in 2019 of approximately K10 million. One
of the more important changes from our retail customers’ perspective was
the product changes that eliminates the monthly maintenance fee that
many retail transaction customers were charged irrespective of whether
they used the account in the charging period or not. All retail customers
now have products that charge a monthly packaged fee with all transactions
part of the monthly fee, or a pay as you go account whereby they are only
charged a fee when they transact on the account. Monthly loan service fees
were also eliminated for our housing loan customers.
Feedback from our customers in every country continued the trend of
positive improvement with all countries meeting or exceeding the customer
satisfaction benchmark. A better understanding of fees and charges by our
customers, improvements in service and being seen as trustworthy by our
customers contributed to the good customer survey outcomes.
Earthquake disaster relief donation
On a much more positive note, PNG successfully hosted the 2018 APEC
Forum in Port Moresby November 2018. This was the first time that PNG
has hosted APEC since it joined the Asia Pacific Economic Co-Operation
group of countries in 1993. Leaders from the majority of APEC countries
attended the forum in Port Moresby and PNG hosted President Xi Jinping
of China for a state visit immediately prior to the APEC forum. The Leaders’
summit was the culmination of a year of events that included a number
of APEC Business Council Advisory Board related meetings and the CEO
summit. BSP was a Gold sponsor of this summit and congratulates everyone
involved with the hosting of APEC and the ABAC summits.
Customers visitng a branch in Tonga
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BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Two major changes to our organisation structure were announced towards
the end of 2018. With the retirement of one of BSP’s longest serving
employees, Aho Baliki OBE General Manager Paramount Banking in January
2019, a decision was made to collapse our Paramount Banking SBU into
Retail SBU as one of Retail’s business units, and concurrently to elevate
Digital Business Unit to SBU status and appoint Nuni Kulu as General
Manager Digital. Aho has served BSP for over 43 years in a distinguished
career and the board and staff wish him all the best in retirement. Nuni
becomes BSP’s second female General Manager and her appointment
further illustrates BSP’s commitment to merit based diversity.
Nuni Kulu appointed as
General Manager Digital
BSP Fiji farewelled their Country Manager, Kevin McCarthy, who has led
the Fiji bank since BSP purchased the business in 2010. The group board,
management and all our staff in Fiji wish Kevin all the best and thank him
for his significant contributions to BSP in Fiji. He is succeeded by Haroon Ali,
who had been Group Chief Risk Officer for five (5) years and returned to Fiji
to assume the role as Country Manager Fiji.
With almost 4,300 staff, BSP is one of the largest private sector employers
in the region. Almost half of the workforce is female and whilst there
has always been a high proportion of females in supervisory roles and
middle management (57% on average) the ratio reduces to 35% at senior
management levels and to only 15% in Executive and Senior Executive roles.
BSP’s Leadership Management Development Program has the objective of
identifying future leaders within BSP and providing them with leadership
and specialist skills training to assist them meet their career goals and also
to provide improve BSP’s succession planning capabilities. Of the 42 staff
who participated on the program in 2018, 26 are female and the larger
numbers of females in the program will positively influenced the numbers
of females in Executive roles in future years.
A staff engagement survey was also undertaken across the group and as with
the customer survey, there was positive improvement on the previous year
with good feedback on key areas of staff engagement such as satisfaction
with BSP, advocacy, motivation and remuneration. Two key findings which
reflect positively on BSP and its values was the strong sense of pride in
working for BSP and BSP’s commitment to its community.
BSP’s ongoing commitment to compliance was recognised with the
creation of an additional eight (8) Quality Assurance staff in each of our
SBU’s to provide senior management and the board with assurance of BSP’s
compliance with policies, procedures, legislation and regulator standards
with specific detail on any areas that require more focus or increased
allocation of resources. This complements our operational risk and audit
functions within BSP and is designed to recognise the increasing need for
assurance by senior management and boards.
years and involved a significant amount of collaboration both internally and
with our auditors PricewaterhousCoopers (PWC).
BSP committed to a number of projects at the beginning of 2018 that
would improve our technology delivery and internal process improvements.
These included an upgraded Smartphone app for our digital banking, an
upgraded USSD mobile banking platform and an upgrade of our payments
switches in Cook Islands, Solomon Islands, Samoa, Tonga and Vanuatu with
the objective of having a common switch vendor across the pacific and to
facilitate upgrades associated with EMV chip compliance, as a pre-requisite
to introducing chip based cards in our off shore branches.
The Cook Islands switch upgrade was completed in the last quarter of
2018, which was behind our planned implementation time frame with a
consequential impact on delivery to the other countries that will now occur
before the end of the first half of 2019. The delays were disappointing as
they also affected the timing of introduction of chip cards in each of those
countries, but we are confident of achieving the revised timelines.
Our HR system was introduced in all countries outside of PNG during
2018, with Fiji being the final country to go live in the first quarter of 2019.
This affords improved functionality and productivity with online leave
management capability and centralised payroll from PNG.
The new core banking project progressed somewhat slower than had been
contemplated in our project plan, with cut over now expected at the end
of 2020 for PNG. Additional staff have been recruited and expertise has
also been sought from firms with experience in large projects such as this
to reduce the prospect of further slippage, or cost overruns that have not
already been factored into our capital and operational expenditure budgets.
Launch of BSP Finance Cambodia 2018
We continued to upgrade and improve our bank premises in PNG and
across the region. This included a new SME centre in Goroka, a new sub
branch in Buin and a full renovation of Kiunga branch. Work commenced on
a full renovation of our Nuku’alofa main branch and Head Office in Tonga,
a renovation and refresh of our Honiara Central branch in Solomon Islands
and construction of a second branch in Port Vila Vanuatu.
Every country contributed positively to our financial performance in 2018
with return on equity targets being achieved or exceeded. Our staff in each
country are to be congratulated for their efforts with BSP outperforming our
competitors in every country.
BSP Bank Contribution by Country
NPAT (PGK’000)
2014
2015
2016
2017
2018
PNG
Fiji
474,411
447,544
517,232 591,229
647,812
27,082
41,050
59,780
59,692
66,612
Cook Islands
1,823
2,934
4,801
6,781
Solomon Islands
11,398
15,333
27,133
33,498
39,854
Our support business units continued to assist with the implementation of
BSP’s strategic imperatives and contribute positively to BSP’s operational
effectiveness. Finance & Planning and Group Risk were instrumental in the
body of work associated with BSP’s preparedness for and implementation of
the new financial standard for measurement and reporting of financial assets
and liabilities, IFRS 9. As indicated in the financial statements, which form
part of this annual report, BSP is compliant with the IFRS 9 requirements
and standards. The work associated with IFRS 9 compliance spanned two (2)
Tonga
Samoa
Vanuatu
12
3,884
4,732
10,720
12,495
15,607
7,306
1,497
7,982
13,537
6,780
8,619
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Market Share
Loans
Deposits
Loans
Deposits
Loans
Deposits
Loans
Deposits
Loans
Deposits
2014
2015
2016
2017
2018
PNG
Fiji
Cook Islands
50%
21%
56%
24%
Solomon Islands
28%
38%
Tonga
Samoa
Vanuatu
54%
22%
35%
46%
35%
18%
55%
23%
35%
58%
36%
20%
55%
22%
35%
45%
38%
23%
12%
57%
25%
36%
54%
39%
23%
13%
59%
24%
37%
52%
42%
26%
14%
60%
24%
37%
54%
38%
29%
14%
61%
25%
39%
52%
42%
29%
16%
61%
24%
43%
55%
40%
30%
13%
BSP Finance reported good profit growth and has justified the support
of the board in their decision to establish our BSP Finance franchise. Our
Cambodia Joint Venture was officially rebranded as BSP Finance Cambodia
in January 2018 and we are discussing with our JV partners the prospect of
a BSP Finance Business in Lao.
Our BSP Capital Business was successful in being awarded the licenced
investment manager role for Nasfund during 2018, and undertook some
internal restructuring in conjunction with a full business review. This
involved the sale of BSP Capital’s 62% shareholding in the Port Moresby
Stock Exchange which was completed towards the end of 2018.
BSP Finance NPAT
NPAT (K’000)
2015
2016
2017
2018
BSPI PNG
BSPI Fiji
BSPF SI
BSPF Holdings
BSPI Cambodia
Total BSP Finance
Group
(1,939)
(490)
(872)
689
0
0
0
0
0
0
(991)
4,303
(398)
(80)
181
4,170
6,773
(312)
(772)
841
(2,429)
(183)
3,015
10,700
BSP Life in Fiji successfully completed its core system upgrade during
2018 and staff involved in the project are to be congratulated. The BSP
Life business performed very well financially with the expectation that
productivity improvements consequent to the introduction of the new
system should start to be realised in 2019. BSP Life Fiji also farewelled their
Managing Director Malakai Naiyaga who took over as Managing Director
when BSP purchased the business in 2010. The board, management and
staff wish him all the best in his retirement. He is succeeded by Michael
Nacola who has been with BSP Life for over seven and a half years.
Our board led by our Chairman Sir Kostas Constantinou maintained effective
oversight of BSP’s operational performance, risk management systems and
governance whilst also ensuring the board determined strategic objectives
for BSP were actively monitored and managed. Their guidance and support
greatly assisted with BSP’s achievements in 2018.
In closing our staff in all of our businesses and each of the countries in
which we operate, are to be congratulated for their efforts and support in
delivering these record results for our shareholders, and I look forward to
their ongoing commitment in 2019.
Robin Fleming,CSM
Group Chief Executive Officer
Net Profit After Tax (K’million)
844.0
643.5
757.0
531.9
507.3
2014
2015
2016
2017
2018
13
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 HISTORICAL
SUMMARY
Profit and Loss (K’000)
Net interest income
Non interest income
2013
740,857
793,487
2014
2015
2016
2017
2018
884,761
1,006,251
1,107,686
1,277,676
613,970
540,888
684,371
720,674
Bad and doubtful debt (expense)/recovery
(78,573)
(76,796)
(89,905)
(98,622)
(77,678)
Other operating expenses
(833,849)
(703,085)
(691,084)
(769,641)
(852,148)
(887,157)
Operating Profit
621,922
718,850
766,150
923,794
1,068,524
Impairment of non-current asset
(14,967)
-
-
-
-
1,380,796
784,909
(82,380)
1,196,168
-
1,196,168
Profit before tax
Income tax (expense)
Profit/(loss) after tax
Dividends (toea)
Dividends paid per share1
Balance Sheet (K’000)
Net loans and advances
Total assets
Deposits
Capital
Performance Ratios
Return on Assets
Return on Equity
Expense/Income
Key Prudential Ratios
Capital adequacy
Liquid Asset Ratio
Leverage ratio
Exchange rates (One (1) PNG Kina buys):
US Dollar
AUS Dollar
606,955
718,850
766,150
923,794
1,068,524
(170,127)
(211,511)
(234,271)
(280,343)
(311,521)
(352,096)
436,828
507,339
531,879
643,451
757,003
844,072
58.0
66.0
79.0
88.0
111.0
127.0
5,306,362
6,756,997
8,621,514
10,102,909
11,209,493
12,530,649
15,761,420
15,816,507
18,196,303
20,831,803
22,369,861
23,050,060
12,200,999
12,708,383
14,595,374
16,912,349
17,901,692
18,232,766
1,619,060
1,800,193
2,029,176
2,314,337
2,628,335
2,872,135
3.0%
28.3%
54.3%
18.0%
41.8%
7.6%
0.3905
0.4369
3.2%
29.7%
46.9%
24.0%
34.3%
9.0%
0.3855
0.4708
3.1%
27.8%
44.7%
23.1%
31.5%
8.9%
3.3%
29.6%
42.9%
23.1%
35.8%
9.3%
0.3325
0.4552
0.3150
0.4354
3.5%
30.6%
42.6%
24.5%
36.9%
10.0%
0.3095
0.3965
3.7%
30.7%
41.0%
22.9%
33.6%
10.3%
0.2970
0.4208
1BSP has adopted the practice of paying an interim dividend based on half year results, in October of each year, and paying a final dividend based on
audited full year results, after the end of the financial year, and no later than the end of the second quarter of the succeeding year.
All Amounts are expressed in K'000
2013
2014
2015
2016
2017
2018
Company income taxes paid to PNG
Government
Other taxes paid to PNG Government (IWT,
FCWT,BWT)
GST paid and not able to be recouped
Donations and Sponsorhips
Total
155,391
188,627
249,210
292,443
257,210
354,947
4,989
14,082
9,267
2,568
11,024
9,358
3,701
16,793
8,218
10,226
21,268
4,345
8,214
22,101
5,217
10,018
25,337
6,482
183,729
211,577
277,923
328,282
292,742
396,784
15
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018HISTORICAL SUMMARY CONTRIBUTIONS BY BSP TO PNG STRATEGIC BUSINESS
UNIT REPORTS
STRATEGIC BUSINESS UNIT REPORTS
The daily execution of BSP’s business operations is the responsibility of the Strategic Business Units (SBUs). The SBUs are
Corporate, Retail Banking, Treasury, Paramount Banking, Group Risk Management, Human Resources, Operations and
Information Technology, Finance & Planning and Offshore Branches (OSBs). The 2018 reports and highlights of each SBU are
presented below.
CORPORATE BANKING
Corporate maintained its growth momentum in 2018, through meeting the
needs of its Papua New Guinean commercial, institutional and government
customers.
BSP’s Corporate services are delivered by experienced relationship teams
and product specialists in Papua New Guinea, with expert knowledge in
transactional banking, lending, infrastructure, digital and foreign exchange.
Our relationship teams are located where our customers operate in Port
Moresby, Lae, Mt Hagen, Madang and Kokopo.
Customer satisfaction remains BSP’s top priority and once again we have
achieved improved customer satisfaction scores. Our survey results
highlight continued strong gains in customer satisfaction on all key drivers
of service, relationship management, products, fees, charges and rates,
premium branches and foreign exchange. Of note was the feedback on
BSP as a whole and Relationship teams as being seen as trustworthy by
our customers.
Our “icare” customer service culture remains a constant focus and we
operate in an integrated way with all areas of the Bank through our “whole
of BSP” culture, leveraging the largest retail branch network across Papua
New Guinea and the South Pacific. Corporate’s strong credit culture has
a focus on prudent credit risks and maintains a strong partnership with
Group Risk Management.
BSP’s corporate business is the leading business partner of choice in the
region. Accordingly, it remains extremely well positioned to deliver on
its financial and customer service objectives for 2019, leveraging growth
prospects in regional trade, infrastructure, mining and oil and gas projects.
RETAIL BANKING
Like Corporate, Retail experienced continued strong growth across its
operations. Customer acquisition, system improvements, fee reductions
and customer centricity were the catalysts for another successful operating
performance by the Retail SBU during 2018.
A total of 218,600 new customers joined BSP in 2018, with this growth
being consistent with that achieved in past years. A number of these
customers were previously unbanked and became customers following
financial literacy training delivered by BSP’s Banking Education Unit.
The growth was geographically widespread reflecting the fact that BSP
operates the largest branch network in Papua New Guinea, with branches
in every Province and most Districts. Our approach to financial inclusion
has been the foundation for customer growth over a number of years.
During 2018, BSP upgraded its USSD Mobile Banking platform and our
Mobile App platform. Customer transaction volumes through these
channels increased 63% in 2018. Year-on-year growth in customer
transaction across the BSP EFTPoS network increased 26%. ATM
transaction volumes increased by 13% in 2018.
Overall, customer transactions volumes across all digital, electronic and
“over-the-counter” channels increased 18% during 2018 with 88% of those
transactions being through digital or electronic channels.
Lending activity also experienced strong growth during 2018. Outstanding
Personal Loan balances increased 16% during 2018,with the growth being
assisted by the inclusion of Consumer Credit Insurance cover for new and
refinancing Personal Loan customers at no additional cost to the borrower.
Housing Loan finance growth was strong, with outstanding loan balances
increasing by 28%. The growth was predominantly in the First Home
Owners sector and reflects the strong commitment BSP has to contributing
to Papua New Guinea’s economic growth through home ownership.
Small business lending also increased significantly during 2018, with
growth of 86%. BSP opened its third dedicated SME branch at Goroka
in 2018. We continue to offer a “pathway” for Small Business operators
to move from the cash economy into the formal financial sector and like
all BSP operations, customer participation is spread across Papua New
Guinea, including rural areas. The BSP SME segment also reflects strong
participation by female entrepreneurs, many of whom are our most
successful SME customers.
Fairness in pricing and looking at products and services through the eyes
of our customers was a focus during 2018. A number of service fees
were either removed entirely, or significantly reduced, during 2018. This
will have a greater financial impact during 2019, however we anticipate
that continued strong growth in the number of new customers will fuel
increased transaction volumes - the latter will be an area of renewed focus
for Retail.
Home loan finance was strong in 2018.
Customers at Hausples PNG Real Estate Expo.
PARAMOUNT BANKING
Paramount maintains a strong partnership with the PNG National
Government and all other levels of Government in PNG. The Banking
relationship with the Government has been and will continue to be a major
focus of Paramount Banking’s activities.
With our strong PNG National Government partnership, Paramount
Banking was invited to deliver a key note speech at the Department of
Finance conference that was held at Buin, South Bougainville, Autonomous
Region of Bougainville. The conference was for all Department of Finance,
Provincial and Local Level Government Senior Officers with the theme
“Improving Financial Management Services at the Sub National Level
through Reforms.”
is responsible
for
Paramount Bank’s Community Liaison Officer
maintaining Landowner groups banking relationships (in conjunction with
Retail staff) visited the following areas: Ramu Nickel project area, Alotau,
Wau (Harmony Gold), Madang and Lae, which included beneficiaries of
Ramu Agri Industries Ltd. As a consequence of the visits, about 118 new
landowner group and 190 related accounts were established. Further,
during the visits over 120 senior landowner people attended financial
literacy and management training/workshops.
Paramount Banking continues to play an important role in the execution of
the Group Strategy, with sustainable growth, while maintaining operations
within budget forecast.
TREASURY
Treasury’s role is to support client relationships, act as BSP Group’s banker,
and be a key part of the risk management process in terms of market,
17
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 STRATEGIC BUSINESS UNIT REPORTS
liquidity and capital risk.
In its client relationship role, Treasury fosters and enhances relationships
with clients, providing financial markets services, and ensuring clients
remain aware of the regulatory environment and its implications.
Treasury is also involved in managing foreign exchange flows, local and
foreign currency liquidity flows, investing surplus funds prudently in the
interbank, Treasury Bill and Inscribed Stock markets, funding foreign
currency balance sheet operations across seven (7) countries, and
complying with all regulatory and internal guidelines and limits.
The risk management role is discharged through management of market
risk, liquidity risk, capital and capital planning, in line with prudential
requirements, by the Group Asset and Liability Committee directives and
delegated Board authorities.
PNG Treasury foreign exchange (FX) earnings were above prior year levels,
even though 2018 was again challenging, as import demand exceeded
export supply of foreign currency. The official Bank of Papua New Guinea
(BPNG) rate of exchange fell gradually over the year to finish the USD
0.2970 (a decline of 4.2%).
The Bank’s PNG FX market share remained stable, increasing slightly from
43.4% in 2017 to 43.5% in 2018. The Bank’s FX turnover rose 17.2% in 2018,
while PNG’s FX market turnover rose 17.1%.
BSP continued to invest surplus funds in government securities. Movements
in the Government debt yield curve reflected evolving fiscal conditions.
28 day Central Bank Bills fell from 1.41% to 1.39%, 91 day Treasury Bills
fell from 2.85% to 2.63%, 182 day Treasury Bills fell from 4.73% to 4.71%,
whilst 1 year Treasury Bills fell from 8.03% to 7.93%. Yields on longer dated
Government issued Inscribed Stock were generally stable. A milestone
event for the Government’s debt management was the successful issue of
PNG’s inaugural Sovereign Bond of US$500 million over a 10 year term at
8.35%, which was seven (7) times over-subscribed.
Operationally, PNG Treasury continues to mitigate risk and is actively
focused on providing technical training for our staff. Treasury dealing staff
training encompasses weekly technical training associated with Australian
Financial Markets Association Foreign Exchange Markets Accreditation
regulatory and internal compliance training, on the job cross training and
sales training. The strong focus on training will continue in 2019.
OPERATIONS AND INFORMATION TECHNOLOGY
The key activities within the SBU revolved around the Core Banking Program
– Project Compass, technology project deliveries, and cyber security.. The
Compass Program continues to make progress, albeit not as rapidly as per
initial expectations. Typical of large technology programs, unexpected
challenges have been encountered which has resulted in delays and cost
increases.
Despite this, we have gained traction, specifically within the areas of data
migration from legacy systems to mock migration simulations, the setting
of product parameters on the “to be” system, documentation of business
and functional requirements for any customisations required for individual
countries, completion of all functional and design documentation for
interfaces as well as adoption of an automated test tool for more efficient
and effective testing within the various phases of the project. Moreover,
we are now undertaking business process reviews across the new core
banking modules and related applications to gauge the extent of change
management required and hence to develop the approach to staff training
and customer education in preparation for go live.
2018 APEC meeting in Port Moresby as well as integration of our EFTPoS
solution to participating high value merchants’ POS systems, thereby
eliminating duplicate transactional captures at their counters. Given the
focus on customer data protection and cybercrime prevention, we have
implemented new Information Security systems to better manage and
monitor all data traffic (incoming and outgoing) through the BSP network.
This includes potential security incident identification as well as real time
threat monitoring, which has been bolstered by implementation of data
classification standards for data generated within the Bank, such that any
attempts to export sensitive data is identified and addressed. Moreover,
in line with the ever more stringent security requirements mandate
from SWIFT, we have implemented a number of security enhancements
including a separate security environment for cross border transactions.
With regards to branch premises improvements, there has been significant
investment within the Offshore Branches, with a completely refurbished
Honiara Central branch, construction of a second branch in Port Vila, as
well as refurbishments in the main branches in Apia and Nuku’alofa. All
have led to a much improved customer experience levels within those
locations.
Launch of Union Pay cards for BSP ATM
GROUP RISK MANAGEMENT
Effective risk management is necessary for the achievement of BSP’s vision.
BSP has a Board approved Group Risk Appetite Statement that reflects the
level of aggregated risk that BSP is willing to assume and manage in the
pursuit of its business objectives.
The CEO and the Executive team are responsible for implementing BSP’s
Risk Management Strategy and frameworks, and for developing policies,
controls, procedures and processes for identifying and managing risk in all
activities.
Various Business Units within the Group Risk Management oversee risk
measurement, monitoring and management against the group’s risk
appetite benchmarks.
Credit
Credit Business Unit undertakes key activities to manage credit risk within
our Group Risk Appetite Statement. It is responsible for monitoring the
overall credit quality of the Bank’s loan portfolio, implementing, reviewing
and compliance with credit policies, procedures and industry underwriting
standards, monitoring sector concentration limits, implementation and
management of Social and Environmental Management System, and
portfolio management responsibilities.
In terms of other technology driven projects, with direct customer impact
delivered during the year, we have implemented a new diagnostic tool
enabling remote problem resolution on ATMs, thereby improving our
average up time significantly. BSP also invested in high capacity card
printing technology, reducing the time it takes to manufacture Visa and
MasterCard scheme cards and deliver them to our customers. We upgraded
our USSD Mobile Banking solution, offering increased functionality with
greater security. We also completed the acquisition of China Union Pay
transactions across ATMs and EFTPoS in anticipation of the November
Credit, in collaboration with Corporate and Retail Banking, defines and
manages credit risk by developing a credit risk strategy that identifies the
Bank’s target market and risk tolerance.
The credit risk strategy provides a platform to grow the business within
defined parameters, sustain a quality loan portfolio across a diversified
range of economic sectors and countries in which BSP operates. The
effective implementation and monitoring of credit risk strategy by Senior
Management is a cornerstone of BSP’s credit risk culture.
18
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 STRATEGIC BUSINESS UNIT REPORTS
Credit Risk training of our staff was a key focus during the year. Our staff
benefited from availability of both external face-to-face and online training,
as well as internal weekly credit related training topics designed to enhance
capability, effective understanding of key policy and procedures and BSP’s
credit risk culture.
Operational Risk
During the year the Operational Risk Business Unit was restructured into
two separate business units to provide a clear focus for the identification,
understanding and management of operational risks and compliance risks
in BSP. The “Operational Risk” and “Compliance & AML” Business Units
have broad and independent operational risk management and compliance
responsibilities across the Group.
Operational risk is defined as the risk of direct or indirect financial loss
resulting from inadequate or failed internal processes and systems or
external events. Operational risks are inherent in the Bank’s business
activities and processes. To manage and mitigate these risks, this second line
of defence provides oversight to the business through an operational risk
framework. Tools to manage this include risk and control assessments and
mitigation planning at both Business Units and enterprise levels, risk event
management processes and new product approval processes.
BSP is cognisant that both domestic and foreign regulations shape the risk
environment in which it operates. Hence, significant focus has been placed
on the Compliance and Anti-Money Laundering (AML) function throughout
the year, to ensure BSP’s continuous adherence to laws, regulations,
prudential standards and guidelines that govern its conduct.
Compliance & AML
Compliance & AML is a second line of defence function and its primary role
is to identify and translate relevant compliance risk-related laws, regulations
and standards into compliance obligations and assist Management to identify
compliance risks and mitigate them based on BSP Group’s risk appetite.
During 2018, there has been great focus by international and supranational
agencies on the Anti-Money Laundering and Counter Terrorism Financing
(AML/CTF) regimes globally including Papua New Guinea, Vanuatu, Cook
Economic conditions remained stable
2018 Financial Presentation
Overall performance of the Group loan portfolio, notwithstanding somewhat
subdued economic conditions, remained largely stable. Non-performing
loan levels increased through migration of a few single name exposures.
The Bank, with the assistance of Standard & Poor’s Capital IQ, has
recalibrated and revalidated the internal Risk Grade system aligning the
resulting Probability of Defaults to S&P Global ratings.
Key lending policies and procedures continue to be reviewed on an ongoing
basis, to ensure the Bank is aligned with the banking regulatory compliance
and industry environment and preserves prudent credit risk management
standards.
Celebrating Papua New Guinea’s Independence day.
19
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 STRATEGIC BUSINESS UNIT REPORTS
Islands and Samoa. With the issuance of new and amended AML/CTF laws,
BSP has had to translate those laws into specific compliance obligations
and implement robust policies and procedures to manage the associated
compliance risk.
Risk awareness workshops across BSP targeted general operational risks,
compliance, sanctions, anti-money laundering and fraud detection. The
Operational Risk and Compliance & AML Business Unit continued to provide
support to the Operational Risk Committee and Board Risk and Compliance
Committee, facilitating analysis and regular reporting of operational risk and
compliance & aml issues.
Asset Management
Asset Management manages the non-performing asset portfolio. Non-accrual
loans for the Group increased to 1.8% (from 1.1% 2017) which reflects more
subdued conditions in PNG in particular. Defaulting unsecured consumer
loans rates remained consistent in 2018. The recovery rate reduced from
84% to 71%, but remained within expected risk tolerance levels.
Credit Inspection
Credit Inspection provides an independent assessment of the Bank’s
compliance with credit policy and also of portfolio quality. Functionally,
it has an independent and direct reporting line to the Board Risk &
Compliance Committee and administratively to the Group Chief Risk Officer
and Group Chief Executive Officer.
The primary role of the Credit Inspection Business Unit is to provide a
professional, independent risk management function of the best practice
standard and portfolio quality assurance which assists Senior Management
and the Board via the Board Risk and Compliance Committee in the effective
discharge of their responsibilities. The Unit performs independent analysis
and objectively concludes on the quality of credit risk assessment, credit
approval, credit risk management, compliance, risk control and credit
portfolio reporting. It also makes recommendations to address weaknesses
and improve compliance.
The unit’s independent assessment activities are executed through “onsite”
inspections, and where applicable, “off-site” inspections of the credit risk
portfolio for the Bank and related entities, in all jurisdictions. The main
objective is to achieve early detection of material shortcomings of credit
risk and compliance with Group policies.
In 2018, Credit Inspection completed 4 reports for Retail Banking (Personal
Lending) and 7 reports for Corporate Relationship teams and also BSP
Finance (PNG) Ltd. Within Corporate approximately 47% of the Loan
Portfolio was reviewed by Credit Inspection. The review of the BSPF (PNG)
loan portfolio covered approximately 20% of new loans written in 2018.
Credit inspection also reviewed General Insurance and Valuation service
provider arrangements in Both PNG and the overseas Branches.
Audit
Audit undertakes regular risk based internal audits of processes and
procedures to maintain compliance with regulations and BSP standards
and retains an independent and direct reporting line to the Board Audit
Committee. It provides the third element of defence in the business unit
structure of Group Risk Management, and acts as the last line in BSP
Group’s Risk Management framework.
BSP has independent internal audit functions for the Group reporting,
through the Head of Group Internal Audit, functionally to Board Audit
Committee and administratively to the Group Chief Executive Officer.
Key audits during 2018 included Anti-Money Laundering, Payroll, Digital,
Transaction Channel & Customer Support, BSP Finance Ltd, General Ledger
Reconciliation, Treasury and all Retail branches. The Internal Audit teams
also conduct audits for all countries and subsidiaries.
Legal
The Legal Services Unit provides, or sources, the legal services and advice
20
required by the Bank in conducting its business, principally in the area of
banking, commercial and securities law, litigation both for and against the
Bank, regulatory compliance, employment law and property. To the extent
possible, these services are provided by a team of in house lawyers with
external lawyers being engaged where deemed necessary or prudent.
HUMAN RESOURCES
Human Resources provides a support role for BSP’s operations through
its core HR Management functions for employees in Papua New Guinea
(PNG) and the Offshore Branches (OSBs). A major highlight for the year
was BSP receiving the award for “Best Private Sector Employer” from the
Papua New Guinea Human Resources Institute (PNGHRI) for the fifth year
in a row. The award continues to recognise BSP as a model organisation,
with the best Human Resource practices in PNG. This award is a testament
2018 PNGHRI Award Presentation
of BSP’s commitment to continuously supporting its employees across
our network with people initiatives that make a difference. Our Talent
Management Business Unit in 2018 continued its HR Best Practise
projects implementation, which was initially rolled out in 2016. The
major undertaking was the build of the e-Recruitment platform via our
iChris HR System, with the objective of making the recruitment process
more efficient and user friendly. The Project will be finalised in 2019.
The Talent Management team also continued to utilise our Assessment
Centre capabilities again this year for the Graduate Development Program
recruitment process, to ensure quality and high potential graduates are
selected as part of BSPs talent pool of future leaders.
Graduate Trainees 2018
Employee Relations had a challenging but positive year, with respect to
some of its major activities. BSP continued to assist a number of employees
with medical referrals domestically (to Port Moresby) and overseas when
further medical attention for serious conditions and urgent treatment is
required. Furthermore, with the increase in lifestyle diseases affecting
staff, a number of key awareness sessions were facilitated for employees in
respect to key health issues such as TB, Polio and other life style diseases.
HR mobilised support for staff who were affected by large scale natural
disasters such as floods, cyclones, earthquakes and droughts and also staff
who suffered personal loss from loss of homes by fire.
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
The Training and Development BU continued to deliver soft skill and
computing courses to PNG as well as the OSBs, particularly in Vanuatu
and Samoa. This year we also implemented the learning and development
module in our HR system to enable all employees to apply for training via
our HR Self Service platform. This has enhanced the enrolments, tracking
and reporting of all training activities. The BSP Graduate Development
Program was also a major success this year with 10 graduates successfully
completing the program.
Better team work to improve service
BSP staff in Cook Islands
The Organisational Development Business Unit was created in October
2018, replacing what was previously the HR Strategy and Change BU. The
main purpose of the restructure was to enable HR to better respond and
adapt to industry/market changes and technological advances and in turn
support the core HR functions and BSP. The BU is responsible for staff
engagement surveys, Hay Job Evaluations and updating of Job Profiles
and Organisation Charts for BSP Group; icare which coordinates BSPs
in-house customer service culture program; and Career Development
which coordinates the Performance Enhancement Process as well as the
Leadership Management Development Program (LMDP).
STRATEGIC BUSINESS UNIT REPORTS
The new accounting standard IFRS 9 “Financial Instruments”, which replaces
IAS 39 and effective for the 2018 financial year, significantly changes the
way Banks do provisioning on loans and other financial assets. Models
were developed to calculate the forward looking probability of default
rates, were tested and implemented. The final outcome together with the
adopted methodology was shared with regulators and the BSP Board, who
were appreciative of BSP’s efforts to adopt this fairly complex standard.
The Treasury Middle Office team has been actively involved in working with
offshore branches in the rollout and implementation of the Liquidity Risk
Policy across all countries. Compliance monitoring associated with liquidity
management has also been strengthened. Group ALCO reporting was
subject to continuous improvement reviews, with a focus on automation
of reporting and upskilling of staff for the eventual migration to the bank’s
new core banking system.
The Procurement team focused on reviewing various supplier contracts as
well as looking for cost effective solutions for various products and services,
with an aim to provide greater cost savings for BSP. Our Accounts Payable
team concentrated on improving supplier reporting and reconciliations and
improving dialogue and relationships with external suppliers and internal
stakeholders. Better team work provided a more consolidated approach in
improving our invoice and payment processing to our suppliers.
The Strategy team continues to manage the strategic planning process,
reporting cycles and coordinate the delivery of Board mandated strategic
priorities across the Group. Processes for planning, monitoring and
reporting of strategic initiatives were enhanced in 2018. While the
team’s analytical capabilities are continuously improving, we recognise
the opportunity to deliver improved insights to our key business units. A
notable achievement was the development of EFTPoS and ATM profitability
reporting in 2018.
Staff graduating at the Institute of
Banking & Business Management
The Remuneration and Benefits Business Unit continued to focus on
supporting our national staff to own their own homes under the BSP’s First
Home Ownership scheme. Support was also given to the Solomon Islands
to establish a First Home Buyer scheme policy for staff.
The Remuneration and Benefits team, in conjunction with Payroll in Finance
& Planning, received an award on behalf of BSP from NASFUND Limited as
runner up in the compliance category of benefits payment
FINANCE AND PLANNING
Finance & Planning had a challenging yet exciting year with the continuation
of the core banking replacement project, adoption of the new accounting
standard IFRS 9, while meeting the various day-to-day reporting and
compliance requirements of the business.
Our subject matter experts seconded to the core banking team had another
busy year, assisting with system design, initial testing and progressing to
functional acceptance testing with our focus mainly on the General Ledger,
Treasury and Analytical Applications.
Head of Strategy & Investment Relations
giving a speech at the 2018 CPA Annual Conference
21
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 OFFSHORE BRANCHES
STRATEGIC BUSINESS UNIT
OFFSHORE BRANCHES STRATEGIC BUSINESS UNIT
The Offshore Branches Strategic Business Unit was established in 2018 to
bring all the offshore banking operations in Fiji, Solomon Islands, Tonga,
Samoa, Vanuatu and Cook Islands together as a standalone business unit.
2018 was a strong year financially with each of the Offshore Branches
delivering above budget performance. The Offshore Branches delivered
18.3% of the Groups net profit after tax in 2018, an improvement from
16.5% in 2017 and the increasing level of returns generated from these
countries is a strong endorsement of the Groups expansion strategy.
This performance was driven by our focus on growing and cementing our
leadership position in every country and 2018 saw market share growth in
all countries but most notably in Samoa, where BSP attained number one
(1) position, and in Fiji where BSP assumed number two (2) position. This
has been achieved by ensuring we deliver great services by our committed
staff, as well as our significant branch investment program. In 2018, we
completed renovations to Apia Branch in Samoa, Honiara Central Branch in
Solomon Islands and commenced renovation of Nuku’alofa Branch in Tonga
as well as the construction of a second branch in Port Vila, Vanuatu.
BSP Tonga continued its commitment to the community, with our financial
literacy program being delivered to over 10,000 people throughout Tonga.
We also supported various community initiatives including Miss South
Pacific, Miss Galaxy, Go Green bins for Vava’u, King’s Military Tattoo in
Ha’apai Island and computers for Tonga High School and their Robotic
International School Competition in Mexico.
In addition to the above, Nuku’alofa branch is currently undergoing a major
refurbishment, which will be completed in February 2019. This upgrade
will deliver a modern and professional look to our main branch, providing a
more customer friendly environment.
VANUATU
As BSP enters its third year of business in Vanuatu, we continue to focus
on expanding our banking services and being an active corporate member
in the community. With 20 ATMs, 28 active agents and over 400 EFTPoS
terminals, BSP Vanuatu works to support communities and bring banking
services to all Vanuatu population segments. Our expanding footprint
also allows us to work in conjunction with government initiatives, to bring
financial inclusion to the greater portion of the population. This is reflected
in the opening of seven (7) new agencies in 2018 and plans for further
expansion of the agency business in 2019. Following the Tanna Branch
opening in 2017, the business is now in the final stages of completing our
second Port Vila Branch, which will open in Quarter 1 2019. This added
presence in Port Vila will enable BSP to meet the needs and expectations
of our growing customer base.
Building a team in the Pacific
Across the region, BSP continues to support our vision of being the leading
financial services provider in each of our chosen markets by participating
in various community events throughout the year with particular focus
on the environment, education and health. BSP also continues to focus
on delivering our innovative Financial Literacy programs and on driving
financial inclusion outcomes in every country in which we operate.
BSP’s success during the year would not have been possible without
the commitment of our people driven by our core values of Integrity,
Professionalism, Leadership, Quality, People, Teamwork and Community.
We continue to focus on developing the capability of our Pacific Islands
staff in every country and this commitment was exemplified by the
appointment of two (2) Pacific nationals into country leadership roles, Nik
Regenvanu in Vanuatu and Haroon Ali in Fiji.
Opening of new ATM in Vanuatu
BSP Vanuatu actively participates in the community as one of the major
investors and employers in Vanuatu. With a strong focus on corporate
responsibility, BSP Vanuatu plays an active role in supporting the broader
business community, including backing government lead initiatives. BSP
Vanuatu assisted the government and regulatory authorities in achieving
Vanuatu’s removal from the Financial Action Task Force (“FATF”) Grey List
in June 2018.
Financially, BSP Vanuatu performed strongly in 2018 with above budget
performance on income and prudent expense management. A Net Profit
result of VUV287 million was a pleasing outcome for the year.
TONGA
FIJI
In February 2018 Tonga’s Islands of Tongatapu and ‘Eua was hit by Cyclone
GITA, which caused wide spread devastation and estimated damage
of TOP356 million. Despite this devastation, BSP Tonga was one of the
first businesses to open its doors within 24 hours of the cyclone. It was a
difficult time, with many staff without electricity for up to one (1) month,
yet despite this all staff went to great lengths to ensure BSP was open
the day after the cyclone. BSP Tonga provided cyclone relief packages to
customers to assist with the recovery and donated TOP30 thousand to the
Tonga Red Cross.
Notwithstanding, the challenges in 2018, BSP Tonga reported a net profit
after tax of TOP10.6 million, up 23% on 2017 and ahead of budget by 17%.
Income was up in all the revenue lines, with interest income up 5%, foreign
exchange 4% and lending fees 12% and other income 1%. The balance
sheet continued to grow, with both lending up 10% and Deposits 15%.
In August, Mr Haroon Ali took over from the outgoing country manager
Mr Kevin McCarthy, who served BSP with distinction since 2010. Mr Ali
became the first local Fijian to hold the position of Country Head at BSP
Fiji. Two General Managers were also farewelled. Mr Howard Politini
(GM Human Resources) retired after 22 years of service and Mr Ashleigh
Matheson (Chief Risk Officer) has returned to Australia after completing his
assignment in Fiji.
Fiji delivered a Net Profit After Tax of FJD42.3 million against a budget of
FJD39.5 million. This represents growth of 9.3% over 2017 profit (FJD38.7
million). In 2018, BSP’s loan portfolio grew by 12% over 2017, led by growth
in commercial, housing and personal loans. In addition to delivering
another strong performance in terms of profit growth, BSP Fiji became the
number two (2) bank in Fiji, measured by ”loans and advances” market
24
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 share.
The Corporate segment performed well, achieving loan portfolio growth of
13% in a highly competitive local market. Foreign exchange income grew by
20%, driven by the on boarding of new customers in 2018, coupled with a
team of experienced personnel strengthening customer relationships.
Retail achieved 20% loan portfolio growth, largely driven by housing and
personal loans. The strategy to focus on non-interest bearing accounts led
to deposit growth of 32%. Revenue from electronic channels continued to
grow, as did BSP’s investments in these channels.
BSP Fiji launched its first ever state of the art Mobile Banking App. The
Mobile App provides its customers with self-service banking solutions
24 hours a day. The Bank also successfully completed the upgrade of its
electronic switch, enabling continued investment in future technology.
BSP supported its values by participating in various community projects
throughout the year, placing priority on clean environment, provision of
solar lights for schools and supporting the fight against cancer.
SOLOMON ISLANDS
BSP Solomon Islands reported another successful year, with a net profit
after tax of SBD96.3 million in 2018, an increase of 16% on 2017.
During 2018 BSP grew its lending market share to 55.5%. Deposit market
share reduced slightly to 52.2%, however we continued to retain the
majority of surplus liquidity in the banking market.
This year we have also had great success in recovering some long
outstanding loan accounts, which has seen a significant net recovery in
problem loans.
2018 also saw the complete refurbishment of our Honiara Central Branch.
The change has now quadrupled the customer space and supported by
more staff who can deal directly with customers.
During 2018 BSP focused on educating our customers on the benefits of
the various Electronic Banking channels we provide. Consequently, the
2018 growth in Electronic Banking has been close to 20% and this area will
continue to be a major focus in 2019.
The continued growth of BSP in the Solomon Islands could not be achived
without a great team behind it. BSP has 260 staff and only three (3)
non-citizens. We are proud of the achievements of our staff and we are
committed to continue to develop our Solomon Island national staff. Their
development and corresponding gains in confidence have played a big part
in the growth of the business over recent years.
Well done to all our staff for a great 2018 result and we look forward to
another great performance in 2019.
COOK ISLANDS
BSP Cook Islands has delivered a strong financial result in 2018, with a NPAT
of NZD3.0 million, representing a 47% increase on 2017. The performance
was underpinned by solid loan growth of 4.5%, with 2018 finishing with
a gross loan position of NZD92.3 million. The growth has been driven by
strong results in the retail sector and a strengthening commercial pipeline.
Cook Islands has delivered unprecedented growth in deposits, finishing the
year with total deposits of NZD194.9 million a 31.7% increase on 2017. An
increase in Government funds and improved general economic activity has
underpinned the result. However, this growth is anticipated to normalise in
2019, with the Cook Island Government expected to increase spending on
key infrastructure projects such as Te Mato Vai (water reticulation) and Mei
Ti Vai Ki Te Vai (water sanitation) and the Manatua submarine cable. The
ongoing focus on non-performing loans continues and efforts have been
rewarded with a 22.8% total reduction in total non-accrual loans.
Overall, 2018 has been an exceptional year and staff are to be congratulated
for their efforts. Further investments have been made in expanding delivery
OFFSHORE BRANCHES STRATEGIC BUSINESS UNIT
of financial literacy programs, Money Basics and Financial First Steps, to
all schools and communities throughout Rarotonga and the Pa Enua. In
addition, new electronic initiatives, including EMV chip technology, have
been introduced to the market.
Our strategic focus in 2019 is based around customers e-channel experience
and fortifying our position as the leading bank of choice for merchant
and electronic solutions. Diligent management of the balance sheet,
placements, maximising cost reduction opportunities and efficiencies will
also be a focus, to improve financial returns.
Staff celebrating BSP’s 3rd anniversary
in Cook Islands
SAMOA
The 2018 financial period has delivered a strong financial performance that
has been achieved in a stable local economic environment. Pleasingly, the
strength of our balance sheet through a prudent growth strategy, has led
to BSP Samoa becoming the leader in both lending and customer deposits
market share.
Samoa’s NPAT grew to ST$10.6 million, as a consequence of annual income
growth of 26.8 % that was driven by an increase in net interest, foreign
exchange and transactional income. During 2018, customer numbers
grew by 15% to 55,800. Further, customer lending grew by 22% over the
corresponding period. Our commitment to customer service was reflected
in quicker credit decisions, efficient drawdown processes and an expansion
of our electronic channel network that included 23 ATMs, 37 agencies and
over 408 EFTPoS terminals across the country.
We supported our vision by participating in various community events
throughout the year, placing priority on renewable energy and the
environment, financial literacy, youth development via sports, education
and health. BSP’s main community project in 2018, in partnership with the
Ministry of Natural Resources and Environment, involved the installation of
solar lights for schools mainly in the rural areas.
The commitment of our staff and the strength of our culture have been
reflected in the way we foster excellent customer relationships. Our values
of integrity, professionalism, leadership, quality, people, teamwork and
community are integral to our culture and this year we have been committed
to embedding a values-driven approach to work, by demonstrating how we
live these values every day. Staff are to be acknowledged for their ongoing
dedication and commitment to our customers and business, making
possible 2018’s excellent result.
25
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 26
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 SUBSIDIARIES
27
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 SUBSIDIARIES
Launch of BSP Finance Cambodia
BSP FINANCE
Papua New Guinea
BSP Finance PNG achieved an annual profit of PGK4.2 million, as a result
of a strong focus on key sales drivers and enhanced service proposition
to supplier networks. Loan volumes of PGK59 million were achieved,
notwithstanding PNG’s challenging market conditions.
The reengineering of key processes and default management, led to a
significant reduction and stabilisation of arrears and the resulting improved
efficiencies has seen profitability being maintained throughout the year.
Fiji
BSP Finance Fiji continued to perform well in 2018, finishing off with a
profit for the year of FJD4.3 million, which was 57% above 2017. BSPF Fiji
attained market share of 19.45% as of November 2018, with the business
also achieving loan book growth of 28%. An additional branch will open in
Lautoka in the first quarter of 2019.
Cambodia
2018 has been the first full operating year of BSP Finance Cambodia,
with a profit of PGK841 thousand being reported. This profit result was
underpinned by the portfolio doubling to almost US$30 million. The number
of customers continues to grow and now exceeds 1,000. Full Integration of
BSP Finance systems and procedures has been accomplished, allowing for
operating efficiencies and positions the business well to face the expected
strong growth in this very competitive, but dynamic market.
BSP Finance in Cambodia aims to become a leader within the leasing
market, by continuing to grow their support for SMEs’ and agriculture’s
development, while maintaining its traditional markets support.
Solomon Islands
2018 was the first full year of operations for BSP Finance SI, with trading
performance below expectation. 2019 will be a year of growth, as the
business looks to increase its market share in a robust economy by ramping
up its marketing campaign with speed to market and competitive interest
rates being key selling points. More effective leveraging off the BSP Bank
SI network will be one of the main aims in 2019, as this is considered key
towards achieving sales targets.
BSP CAPITAL LIMITED
BSP Capital reported a loss of PGK803 thousand in 2018 which was a
significant improvement on the loss of PGK3.2 million in 2017.
Trading on the local market remained subdued in 2018, with trading
volumes on the Port Moresby Stock Exchange (POMSoX) declining
significantly in comparison to 2017. A lack of institutional dealing weighed
on stockbroking’s financial result. The lower trading activity also saw the
total market capitalisation of the POMSoX decline by 6.2%. During the year
BSP Capital completed the sale of its shareholding of 62.5% in the POMSoX
to Pacific Capital Markets Development Limited in order to comply with the
new Capital Markets Act 2015, which precludes a listed entity’s ownership
of an exchange.
The market share of BSP Finance in Cambodia increased from 8% to 11%
in 2018 and the key strategic imperative to grow market share carries into
2019.
In 2018, BSP Capital originated several medium to large scale advisory
transactions. Given their inception occurring throughout 2018, we expect
momentum picking up for each of the respective mandates during 2019.
BSP Capital was pleased to see a significant increase in the Funds under
Management (FuM), with 2018 growth of 376% to PGK6.9 billion (from
PGK1.45 billion in 2017). FuM growth was driven mainly by the successful
NASFUND Investment Management mandate tender in June 2018. We
also experienced an increase in investments by large corporates investing
in government securities.
BSP LIFE
PNG
BSP Life PNG Limited (BSP Life PNG), the newest wholly owned subsidiary
of Bank South Pacific Limited (BSP PNG), is a registered Life Insurance
Company which started operations on 2 January 2018. The Bank of
Papua New Guinea (BPNG) issued a conditional life insurance license on
23 November 2017 to start operations, with the full approval and license
received on 25 January 2018.
In compliance with the Life Insurance Act, BSP Life PNG has appointed a
separate Board of Directors, chaired by an independent Director, and a
qualified Life Insurance Actuary who have all been approved Fit and Proper
by BPNG for their respective roles. BSP Life PNG operates on a model where
back office support is provided by BSP PNG and life insurance operations
and systems support is provided by BSP Life (Fiji) Limited, under a signed
Signing of BSP Finance Cambodia
28
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
SUBSIDIARIES
businesses, particularly Richmond Limited (trading as Sofitel Fiji) on the
back of improving tourism sector performance, and Future Farms Limited
(trading as Rooster Poultry). Property returns and contributions from the
remainder of the portfolio, including investments in listed entities were
positive.
2018 marked an important chapter for BSP Life, with the successful
implementation of our new core system (BLIS). The system has been
operational for more than nine (9) months, with no major post
implementation issues. BLIS passed the new product development
implementation test in October, with significantly reduced development
time when compared to the previous system.
The Insurance Group’s 2018 profit was FJD21.8 million, 3% below 2017.
The Life insurance market continues to be dominated by endowment
products. Life’s new business for 2018 was 5% above 2017. The Life
inforce portfolio increased by FJD3 million to FJD72.1 million, 4% growth, a
positive outcome given various challenges. The 13-month persistency rate
on annual policy premium of 77% was 0.8% higher than 2017. The focus
on improving new business quality has seen improvement in the inforce
position and this trends is expected to continue in future.
BSP Life leads the Life inforce annual premium market (excluding single
premiums). The latest industry data indicates that BSP Life has 55% market
share.
BSP Health Term Life’s market share on premium income was 56%, while
Medical market share was 48%.
BSP Life celebrating Fiji independence
The outlook for 2019 is positive and the business will look to further increase
its market share through various growth initiatives that are underpinned
by the capabilities of the new system. Looking ahead, our key strategic
focus will be growing the Life and Health inforce books with quality new
business, growing the Investment portfolio, and ensuring the retention of
business to deliver profitable outcomes. An emphasis on optimal use of
existing resources will continue to ensure good financial outcomes.
BSP Life PNG Limited (BSP Life PNG),
the newest BSP subsidiary
service level agreement. BSP Life PNG currently has four (4) employees,
including a Country Manager, with numbers to increase once Group Term
Life and Anticipated Endowment products are launched.
On commencement, BSP Life PNG offered its first life insurance product,
“Consumer Credit Insurance” (CCI) to BSP Bank. This product covers
all new and refinancing BSP Unsecured Personal loan customers from 2
January 2018. Under this policy, BSP Life PNG pays out the outstanding
loan balance, up to a maximum of PGK50 thousand and provides a funeral
assistance benefit of PGK Five thousand to the nominated administrator, if
the borrower passes away prematurely.
The strategic focus for 2019 will include launch of Group Term Life and
Endowment products and growing the business, with particular focus on
upskilling and capacity building of our staff.
FIJI
The performance for BSP Life and BSP Health in 2018 was pleasing, with
achievements generally in line with strategic and financial goals. The
markets for Life and Health Insurance in Fiji remain competitive and 2018
had the added challenge of an election year, which caused some slowdown
in the market.
The strong investment returns experienced in 2017 continued in 2018,
positively impacting financial results once again. The investments portfolio
now exceeds FJD700 million, making BSP Life one of Fiji’s largest institutional
investors. In 2018, we experienced strong performances in our subsidiary
BSP Life Bula Delite launch
29
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
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 practice. The Board ensures that
it complies with the requirements of the Port Moresby Stock Exchange
(POMSoX).
The Board, management and staff of BSP are very much aware of their
responsibilities to the people of Papua New Guinea and the various
countries that BSP operates in. The Board has adopted a statement of
Corporate Governance Principles which outlines the approach BSP has
adopted to corporate governance. These Corporate Governance Principles
provide a framework that helps to ensure that BSP deals fairly and openly
with all its stakeholders – shareholders, customers and staff alike.
BSP’s Corporate Governance Principles are available in the Investor
Relations section of BSP’s website at www.bsp.com.pg.
BSP also complies with the Prudential Standards/Statements dealing with
corporate governance issued by the regulators/central banks in the various
countries that it operates in. These Prudential Standards/Statements
currently include: -
• The Bank of Papua New Guinea (BPNG) introduced its new Banking
Prudential Standard BPS300: Corporate Governance (issued under
Section 27 of the Banks and Financial Institutions Act 2000) in August
2016. The Effective Date of this Prudential Standard was 1 January,
2017, with full compliance by 31 December, 2018.
• The Reserve Bank of Fiji Banking Supervision Policy Statement No. 11:
Governance (Oct 2007).
• The National Reserve Bank of Tonga Prudential Statement No. 9 (revised
2014): Governance.
The sections below explain how BSP complies with the Australian Securities
Exchange (ASX) Corporate Governance Council’s Corporate Governance
Principles and Recommendations. These sections have been adopted by
the Board as BSP’s Corporate Governance Statement.
THE BOARD OF DIRECTORS
Roles and Responsibility of the Board
The roles and responsibilities of the Board are defined in the Board Charter.
This document also details the matters reserved for the Board and matters
that have been delegated to management with oversight by the Board.
The Board, with the support of its Committees, is responsible to the
Shareholders for the overall performance of BSP, including its strategic
direction; establishing goals for management; and monitoring the
achievement of those goals with a view to optimising BSP performance
and increasing shareholder value. The key functions of the Board are:
• setting overall strategy of BSP, including operating, financial, dividends,
and risk management;
• appointing the Chief Executive Officer and setting an appropriate
remuneration package;
• appointing General Managers and setting appropriate remuneration
packages;
• appointing the Company Secretary and setting an appropriate
remuneration package;
• endorsing appropriate policy settings for management;
• reviewing Board composition and performance;
• reviewing the performance of management;
• approving an annual strategic plan and an annual budget for BSP and
monitoring results on a regular basis;
• ensuring that appropriate risk management systems are in place, and
are operating to protect BSP’s financial position and assets;
• ensuring that the company complies with the law and relevant
regulations, and conforms with the highest standards of financial and
ethical behaviour;
• approving acquisitions and disposals material to the business;
• establishing authority levels;
• setting Directors’ remuneration via the Remuneration and Nomination
Committee;
• selecting, with the assistance of the Board Audit Committee, and
recommending to Shareholders, the appointment of external auditors;
and
• approving financial statements.
A number of these responsibilities have been delegated by the Board
to various Committees. The Committees and their responsibilities are
detailed in Section 2, Board Committees.
The Board has delegated to management responsibility for:
• developing the annual operating and capital expenditure budgets for
Board approval, and monitoring performance against these budgets;
• developing and
implementing strategies within the framework
approved by the Board, and providing the Board with recommendations
on key strategic issues;
• appointing management below the level of General Manager and
preparing and maintaining succession plans for these senior roles;
• developing and maintaining effective risk management policies and
procedures; and
• keeping the Board and the market fully
informed of material
developments.
Membership, Expertise, Size and Composition of
the Board
The Corporate Governance Principles affirm that the majority of the Board
should be independent.
Directors of BSP are meticulous in handling situations where there could
potentially be conflicts of interest, by declaring their interest in advance,
and absenting themselves from any consideration of matters where a
conflict might arise. The BSP’s Corporate Governance Principles require
Directors to disclose any new directorships and equity interests at each
Board Meeting.
The maximum number of Directors, as prescribed by the Constitution
approved by Shareholders, is ten. At the date of this report there are
ten Directors, with nine Non - Executives all of whom (including the
Chairman) are considered by the Board to be independent; and the Chief
Executive Officer who is not considered to be independent by reason of
being an Executive of BSP. BSP in the ordinary course of business conducts
transactions with Directors, their spouses, parents and children and/
or parties which any of them control. These transactions include loans,
deposits, and foreign currency transactions. Such transactions are carried
out on commercial terms at market rates and do not require shareholder
approval under Papua New Guinea Company Law. Where they involve
loans, procedures follow BSP’s standard credit approval and review
processes which do not have any involvement of Directors, and BSP holds
security in accordance with its standard procedures. As a result, BSP
considers that Directors are able to maintain their independence even
where a Director is a party to a transaction of this kind because they would
not have been involved in the approval process for that transaction.
Under the Constitution, at each Annual General Meeting (AGM) one-third
of the BSP’s Directors, in addition to any Director appointed during the
year, excluding the Chief Executive Officer, must offer themselves for re-
election by the Shareholders.
A Director is normally appointed for an initial term of three years. At
the end of the term of three years, the Director will become eligible for
reappointment by the Shareholders for a further term of three years and, if
not reappointed, retires automatically. A Director is not normally permitted
to hold office for a period exceeding three terms of three years or nine
31
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
years, whichever is the lesser. Details regarding the length of service of each
Director are set out in the “Board of Directors” section.
Director Independence and Conflict of Interest
CORPORATE GOVERNANCE
The Board has undertaken a renewal and succession planning process
in recent years with the aim of maintaining a proactive and effective
Board in line with the directions of the BSP Group. The Board already has
implemented an independent Board evaluation process to underpin the
assessment of its performance.
Consistent with Recommendation 2.2, BSP has a Board skills matrix
process. These skills include Risk Management, Regulatory/ Government
Policy, business and financial acumen, experience as a Non-Executive
Director, remuneration and corporate governance.
The Board, therefore, has a broad range of skills, experience and expertise
that enables it to meet its objectives. 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 consideration to setting criteria for
new appointments it may recommend to Shareholders in accordance with
the Constitution. It has delegated the initial screening process involved to
its Remuneration and Nomination Committee which, in accordance with
its Charter, may seek independent advice on possible new candidates for
Directorships. All Directors must be satisfied that the best candidate has
been selected.
Consistent with Recommendation 1.2, BSP undertakes appropriate checks
before appointing a person as a Director or offering them to Shareholders
as a candidate for election, and has appropriate procedures in place to
ensure material information relevant to a decision to elect or re-elect a
Director is disclosed in notices of meeting provided to Shareholders.
Nominees of the Board and/or Shareholders must meet the ‘fit and proper
person’ criteria outlined in BPNG Banking Prudential Standard BPS310: Fit
and Proper Requirements before they can take their place on the Board.
Consistent with Recommendation 2.6, BSP has a program for inducting
new Directors and providing appropriate professional development
opportunities for Directors.
On joining the Board, new Directors are provided with an Appointment
Letter setting out the terms of the appointment, a Board induction pack
and undertake a comprehensive induction program. In particular, the
Appointment Letter specifies the term of appointment, BSP’s expectations
in relation to time commitment and Committee work, the Director’s
remuneration arrangements, the Director’s disclosure and confidentiality
obligations, the Director’s insurance and indemnity entitlements, and BSP’s
key corporate governance policies.
BSP’s Senior Management also enter into employment contracts which set
out their terms of employment, including their position, duties, reporting
lines, remuneration and termination arrangements.
Role and Selection of the Chairman
The Chairman is elected by the Directors and holds the position for a
maximum of six consecutive years unless in a certain exceptional instance.
The role includes:
• ensuring all new Board members are fully aware of their duties and
responsibilities;
• providing effective leadership on BSP’s strategy;
• presenting the views of the Board to the public;
• ensuring the Board meets regularly throughout the year, and that
minutes are taken and recorded accurately;
• setting the agenda of meetings and maintaining proper conduct during
meetings; and
• reviewing the performance of Non-Executive Directors.
32
Directors are determined to be independent if they are judged to be free
from any material or other business relationship with BSP that would
compromise their independence.
Prior to appointment, Directors are required to provide information to the
Board for it to assess their independence.
In assessing the independence of Directors, the Board will consider a
number of criteria including:
• the Director is not an executive of the Group;
• the Director is not a substantial shareholder of BSP or otherwise
associated directly with a substantial shareholder of BSP;
• the Director has not within the last three years been a material
consultant or a principal of a material professional adviser to BSP, or an
employee materially associated with a service provider;
• the Director is not a material supplier to BSP, or a material consultant
to BSP, or an employee materially associated with a material supplier
or customer;
• the Director has no material contractual relationship with BSP other
than as a Director of BSP;
• the Director is free from any interest and any business or other
relationship which could, or could reasonably be perceived to, materially
interfere with the Director’s ability to act in the best interests of BSP.
This information is assessed by the Board to determine whether on balance
the relationship could, or could reasonably be perceived to, materially
interfere with the exercise of the Director’s responsibilities. Materiality is
assessed on a case-by-case basis.
As noted earlier, the Board is cognisant of the need to avoid conflicts of
interest and it has in place policies and procedures for the reporting of
any matter, which may give rise to a conflict between the interests of a
Director and those of BSP. These arrangements are designed to ensure that
the independence and integrity of the Board are maintained.
BSP fully complies with the requirements of the BPNG Prudential Standard
4/2003 – Limits on Loans to Related Parties.
Related Party Transactions are summarised in Financial Note 30. The
Directors’ information on page 98 provides details of the Directors’
Interests.
Meetings of the Board and Attendance
Scheduled meetings of the Board are held at least six times a year, and the
Board meets on other occasions as necessary to deal with matters requiring
attention. Meetings of Board Committees are scheduled regularly during
the year. The Board has a policy of rotating its meetings between locations
where the Group has a significant presence. On these occasions the Board
also visits company operations and meets with local management and key
customers.
The Chairman, in consultation with the Chief Executive Officer, determines
meeting agendas. Meetings provide regular opportunities for the Board to
assess BSP’s management of financial, 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 meeting.
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 Executive remuneration, provides
attendance details of Directors at Board meetings during 2018.
Review of Board Performance
Consistent with Recommendation 1.6, BSP has a process for periodically
evaluating the performance of the Board, its Committees and individual
Directors. The key findings of the 2018 Performance Review are available in
Investor Relations section of BSP’s website at www.bsp.com.pg.
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Board Audit Commitee
Geoff Robb
Ernest Gangloff
Arthur Sam
Stuart Davis
Frank Bouraga1
Sir Kostas Constantinou*
6/6
5/6
6/6
5/6
4/6
2/2
Board Risk & Compliance Committee
Geoff Robb
Ernest Gangloff
Arthur Sam
Stuart Davis
Charles Lee1
Priscilla Kevin
6/6
5/6
5/6
5/6
5/6
1/1
Remuneration and Nomination Committee
Freda Talao (Chairman)
Faamausili Dr Matagialofi Lua’iufi
Robert Bradshaw
6/6
4/6
6/6
1 Charles Lee, Frank Bouraga and Priscilla Kevin are non executive and non directors,
appointed by the board for board development purposes.
* Board members who attend BAC to discuss the year end and half year accounts.
Sir Kostas G. Constantinou and Augustine Mano are not members of any
Board committees.
The names and relevant qualifications and experience of Committee
members, and the number of times the Committees met and the number
of meetings each member attended, are set out in the “Board of Directors”
section.
Board and Committee Charters
BSP’s Board and Committee Charters are available in the Investor Relations
section of BSP’s website at www.bsp.com.pg
Committee Structure
Committee members are chosen for the skills, experience and other
qualities they bring to the Committee. At the next Board meeting following
each Committee meeting, the Board is given a report by the Chairman of
the respective Committees and minutes of the meeting are tabled.
Board Audit Committee
The BAC assists the Board to discharge its responsibilities of oversight and
governance in relation to financial and audit matters. The responsibilities
of the BAC include monitoring:
• the integrity of BSP’s financial statements and their independent audit;
• the financial reporting principles and policies, controls and procedures;
• BSP’s internal audit process;
• the effectiveness of internal controls;
• the systems for ensuring operational efficiency and cost control; and
• the systems for approval and monitoring of expenditure including
capital expenditure.
Membership of the BAC is formed amongst the Non-Executive Directors,
excluding the Chairman. The BAC must have a minimum of three Non-
Executive Directors, the majority of whom must be independent. The
Board may also appoint to the BAC additional individuals who are not
executives or members of the Board who have specialised skills to assist
the BAC. The chairman of the BAC must be an appropriately experienced
independent Non-Executive Director, other than the Chairman (or other
Board committee chairman).
The BAC must meet at least four times annually and special meetings
may be convened as required. All meetings must be minuted and tabled
at the subsequent BAC meeting. The BAC regularly reports to the Board
at the earliest possible Board meeting after each BAC meeting about any
matters that should be brought to the attention of the Board and any
recommendations requiring Board action.
Board Risk and Compliance Committee
The BRCC assists the Board to discharge its responsibilities of oversight and
governance in relation to the implementation of BSP’s risk management
33
The Remuneration and Nomination Committee reviews at least annually
the processes by which the Board regularly assesses its own performance
in meeting its responsibilities. It is intended to extend the assessment
of the Board as a whole to include an assessment of the contribution of
each individual Director. The Board is cognisant of the need to continually
identify 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 contribution to the Group’s objective of providing
value to all its stakeholders. The performance review is facilitated annually
by an external consultant.
The Board with the assistance of the Remuneration and Nomination
Committee sets the targets for the Chief Executive Officer and Senior
Management members under BSP’s employee incentive arrangements
described below. These incentive arrangements are administered by the
Remuneration and Nomination Committee. Performance against the
relevant targets is assessed periodically throughout the year and a formal
evaluation is undertaken annually.
Board Access to Information and Advice
All Directors have unrestricted access to company records and information
and receive regular detailed financial and operational reports to enable
them to carry out their duties.
The General Managers of each PNG Strategic Business Unit, Country
Managers and General Managers of subsidiaries make regular presentations
to the Board on their areas of responsibility.
The Chairman and the other Non-Executive Directors have the opportunity
to meet with the Chief Executive Officer, General Managers, Heads of
Subsidiaries and Country Managers for further consultation, and to discuss
issues associated with the fulfilment 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 BSP,
on matters arising in the course of their duties. Any advice so received
is made available to other Directors. Any Director seeking such advice is
required to give prior notice to the Chairman of his or her intention to seek
independent professional advice.
Company Secretary
The Company Secretary, through the Chairman, is directly accountable to
the Board for proper functioning of the Board. Each Director may seek the
advice of the Company Secretary. Under the Constitution, the Company
Secretary may only be appointed or removed by the Board.
BOARD COMMITTEES
Board Committees and Membership
During 2018, four Committees of the Board were in operation whose
functions and powers were governed by their respective charters. These
Committees were the Board Audit Committee (BAC), Board Risk and
Compliance Committee (BRCC), the Remuneration and Nomination
Committee (RNC) and the Disclosure Committee. Membership of the
Committees and a record of attendance at Committee meetings during the
year are detailed in table below.
Remuneration details are provided in Financial Note 28.
Membership of Board Committees during 2018:
Board Audit Commitee
Geoff Robb
Ernest Gangloff
Arthur Sam
Stuart Davis
Frank Bouraga1
Sir Kostas Constantinou*
6/6
5/6
6/6
5/6
4/6
2/2
Board Risk & Compliance Committee
Geoff Robb
Ernest Gangloff
Arthur Sam
Stuart Davis
Charles Lee1
Priscilla Kevin
6/6
5/6
5/6
5/6
5/6
1/1
6/6
4/6
6/6
Remuneration and Nomination Committee
Freda Talao (Chairman)
Faamausili Dr Matagialofi Lua’iufi
Robert Bradshaw
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
CORPORATE GOVERNANCE
(a) approving the release of any announcement to POMSOX, other than:
(i) an announcement that relates to a matter which is both material and
strategically important, which will require approval by the Board; or
(ii) procedural matters such as notice of changes to equity securities or
directors’ holdings, which will require approval by the Disclosure
Officer;
(b) considering whether BSP is obliged or is required to respond to a market
rumour or media speculation; and
(c) overseeing the Disclosure Officer’s administration of the Continuous
Disclosure Policy.
Annual Financial Statements
The BAC reviews the annual financial statements to determine whether
they are complete and consistent with the information known to
Committee members and to assess whether the financial statements
reflect appropriate accounting principles. In particular it:
• pays attention to complex and/or unusual transactions;
• focuses on judgmental areas, for example those involving valuation
of assets and liabilities; provisions; litigation reserves; and other
commitments and contingencies;
• meets with management and the external auditors to review the
financial statements and the results of the audit; and
• satisfies itself as to the accuracy of the financial accounts, and signs off
on the financial accounts of BSP before they are submitted to the Board.
External Audit
The BAC is responsible for making recommendations to the Board on
appointment and terms of engagement of BSP’s external auditors. The selection
is made from appropriately qualified auditors in accordance with Board policy.
The Board submits the name of the external auditors to Shareholders for
ratification on an annual basis. In line with the Prudential Standard of the BPNG,
the signing partner in the external audit firm must be rotated every five years.
The Committee reviews annually the performance of the external auditors
and, where appropriate, makes recommendations to the Board regarding the
continuation or otherwise of their appointment, consistent with the BPNG’s
Prudential 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 unjustified restrictions. Meetings are held separately
with the external auditors to discuss any matters that the Committee or the
external auditors believe should be discussed privately. The external auditor
attends meetings of the BAC at which the external audit and half yearly review
are agenda items.
The Committee ensures that significant findings and recommendations made by
the external auditors are received and discussed promptly, and that management
responds to recommendations by the external auditors in a timely manner.
The duly appointed external audit firm may not be engaged by BSP to provide
specialist advisory or consultancy services to a bank while that same auditor/
audit firm is engaged for services to conduct BSPs annual audit and related
services. Services related to the preparation of a bank’s corporate tax return are
not prohibited. The external auditor is invited to the Annual General Meeting of
Shareholders and is available to answer relevant questions from Shareholders.
The BPNG Prudential Standards provide for a tri-partite meeting between BPNG,
the external auditors, and BSP, if required.
BSP’s external audit firm
is currently PricewaterhouseCoopers (PwC).
Representatives of PwC will attend the next Annual General Meeting in May
2019, and be available to answer shareholder questions regarding the audit.
framework and for the management of BSP’s compliance obligations. The
responsibilities of the BRCC are to:
• review and monitor the principles, policies, strategies, processes and
control frameworks for the management of risk (such as credit risk,
market risk, liquidity risk, operational risk, compliance risk, reputational
risk and other risks);
• oversee BSP’s risk profile and risk management strategy, and
recommend BSP’s risk appetite statement; and
• review and monitor the processes for monitoring compliance with laws
and regulations (both in PNG and in overseas jurisdictions, where BSP
operates) and the implementation of Board decisions by management.
Membership of the BRCC is formed amongst the Non-Executive Directors,
excluding the Chairman. The BRCC must have a minimum of three Non-
Executive Directors, the majority of whom must be independent. The
Board may also appoint to the BRCC additional individuals who are not
executives or members of the Board who have specialised skills to assist
the BRCC. The chairman of the BRCC must be an appropriately experienced
independent Non-Executive Director, other than the Chairman (or other
Board committee chairman).
The BRCC must meet at least four times annually and special meetings
may be convened as required. All meetings must be minuted and tabled
at the subsequent BRCC meeting. The BRCC regularly reports to the Board
at the earliest possible Board meeting after each BRCC meeting about
any matters that should be brought to the attention of the Board and any
recommendations requiring Board action.
Remuneration and Nomination Committee
The RNC assists BSP in fulfilling its oversight responsibilities regarding the
remuneration, succession and recruitment of Directors, Executives and
other BSP employees. The responsibilities of the RNC are:
• to oversee the selection and appointment of a Group Chief Executive
Officer, and setting of an appropriate remuneration and benefits
package for recommendation to the full Board;
•
• to determine and review appropriate remuneration and benefits of
Directors for recommendation to the full Board, and subsequently to
the shareholders;
in conjunction with the Group Chief Executive Officer, to identify
and maintain a clear succession plan for the Executive Management
Team, ensuring an appropriate mix of skills and experience as well
as appropriate remuneration and benefits packages are in place and
reviewed regularly; and
• to ensure that the Board itself maintains an appropriate mix of skills and
experience necessary to fulfil its responsibilities to shareholders while
maintaining a world class Corporate Governance regime.
The Remuneration and Nomination Committee is comprised of three
Non-Executive Directors, with the chairman being one of the independent
Directors of the Board other than the Chairman.
The Chairman of the Remuneration and Nomination Committee must be
one of the independent Directors, other than the Chairman of the Board.
Each member should be capable of making a valuable contribution to the
Committee, and membership is reviewed annually by the Board.
A review of the performance of Committee members will form part of the
Board’s performance review.
Disclosure Committee
The Board has established a new disclosure committee comprising of the
Chairman (or in his absence another Non-Executive Director), the CEO,
the Chief Financial Officer of BSP, the Chief Risk Officer and the Company
Secretary (Disclosure Committee). The chairman of the Disclosure
Committee is the most senior Director present. The members of the
Disclosure Committee may vary from time to time, but will consist of at
least a Non-Executive Director, two Executive Employees (not including the
Company Secretary) and the Company Secretary.
The Disclosure Committee is responsible for, among other things:
34
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Internal Audit
internal audit function. The BAC approves, on the
BSP has an
recommendation of management, the appointment of the Head of Internal
Audit. The Committee meets regularly with the Head of Internal Audit.
Reviews are undertaken of the scope of the work of the internal audit
function to ensure no unjustified restrictions or limitations have been
placed upon the Internal Audit Business Unit. The BAC also reviews the
qualifications of internal audit personnel and endorses the appointment,
replacement, reassignment or dismissal of the internal auditors.
The BAC meets separately with the internal auditors to discuss any
matters that the Committee, or the internal auditors, believe should be
discussed privately. The internal auditor has direct access to the BAC
and to the full Board. The Committee ensures that significant findings
and recommendations made by the internal auditors are received and
discussed promptly, and that management responds to recommendations
by the internal auditors on a timely basis.
Compliance
The BRCC reviews the effectiveness of the systems for monitoring
compliance with all legal and regulatory obligations and the Constitution.
It also reviews the results of management’s investigation and follow-up
(including disciplinary action) of any fraudulent acts, or non-compliance.
The Committee obtains regular updates from management and BSP’s
legal officers regarding compliance matters, and satisfies itself that all
regulatory compliance matters have been considered in the preparation of
the financial statements.
Reviews of the findings of any examinations by regulatory agencies are
undertaken and the Chairman of the BAC has the right to approach a
regulator directly in the event of a prudential issue arising.
RISK MANAGEMENT
Approach to Risk Management
The Group’s Risk Management activities are aligned to the achievement
of the Group’s Objectives, Goals and Strategy. The Board, in consultation
with the Executive Committee, determines the Group’s risk appetite and
risk tolerance and this is expressed in the Group Risk Appetite Statement.
These benchmarks are used in the risk identification, analysis and risk
evaluation processes.
Consistent with Recommendation 7.2, the Board or a Committee reviews
the risk management framework at least annually.
BSP recognises the following major risks:
Credit Risk: The potential for financial loss where a customer or counter
party fails to meet its financial obligation to the Group.
Market Risk: The potential financial loss arising from the Group’s activities
in financial, including foreign exchange, markets.
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.
Compliance Risk: The risk of loss or penalties imposed by a regulator for
non compliance with regulations, prudential standards and policies.
Operational Risk: The risk of loss resulting from inadequate or failed
internal processes, people, or from external events, including legal.
The Credit Committee monitors credit risk. The Group Asset & Liability
Committee monitors market risk, interest risk, and liquidity risk, and
is monitored by the Operational Risk Committee.
operational risk
Compliance and AML is monitored by the recently established Compliance
and AML business unit, including the maintenance of a risk register system
that has been implemented across the Group. The Executive Committee
and the Board overview the highest tier of risks within these risk registers.
The Group’s Risk Management Policy ensures that the Group has in
place acceptable limits for the risks identified by employees. The risk
management approach encompasses the following:
• defining the types of risks that will be addressed by each functional or
policy area (i.e. credit risk, interest rate risk, liquidity risk, operational
risk, Compliance and AML, etc.);
• ensuring that mechanisms for managing (identifying, measuring,
and controlling) risk are implemented and maintained to provide for
organisation-wide risk management;
• developing information systems to provide early warning, or immediate
alert, of events or situations that may occur, or already exist, that could
create one or more types of risk for the Group;
• creating and maintaining risk management tools, including those
requested by the Board, such as policies, procedures, risk registers,
controls and independent testing, management and training, and
planning;
instituting and reviewing risk measurement techniques that Directors
and management may use to establish the Group’s risk tolerance,
risk identification approaches, risk supervision or controls, and risk
monitoring processes;
•
• developing processes for those areas that represent potential risks; and
• establishing appropriate management reporting systems regarding
these risks so individual managers are provided with a sufficient level
of detail to adequately manage and control the Group’s risk exposures.
Risk Management Roles and Responsibilities
The Board accepts responsibility for ensuring it has a clear understanding of
the types of risks inherent in the Group’s activities. Therefore, responsibility
for overall risk management in BSP is vested with the Board. However,
every employee from Executive Management to the newest recruit has a
responsibility and a part to play in the process.
There is a formal system of financial and operational delegations from the
Board to the Chief Executive Officer, and from the Chief Executive Officer to
the General Managers. These delegations reflect the Group’s risk appetite,
and are cascaded down to managers who have skills and experience to
exercise them judiciously.
The Board defines the accountabilities (including delegated approval/
control authorities/limits) and reporting/monitoring requirements for
the risk management process. The severity of risks identified in the risk
identification, analysis and evaluation processes, and noted in the SBU Risk
Registers, is used to determine the approval/control authorities/limits. The
Board undertakes an annual review of the Group’s Enterprise 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
Appetite Statement and Risk Policy and Procedures Manual which have
been approved by the Board. The Board has also delegated to the BRCC
responsibility for overview of loss control and for overseeing the risk
management function.
The BRCC is responsible for receiving reports and providing regular updates
and recommendations to the Board on the risk management activities of
the Group, especially relating to risk issues that are outside of the authority
of the Group’s Executive Committee and other delegated Committees to
approve.
Management Assurance
The Board is provided with regular reports about BSP’s financial condition
and its operating performance. Annually, the Chief Executive Officer and
the Chief Financial Officer certify to the Board that:
•
in their opinion, the financial records of the Group have been properly
35
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
•
maintained;
in their opinion, the financial statements comply with the appropriate
accounting standards and give a true and fair view of the financial
position and performance of BSP; and
• their opinions above have been formed on the basis of a sound system
of risk management and internal control applying to BSP, which is
operating effectively; additionally all General Managers and Country
Managers provide bi-annual statements attesting that;
• they have assessed and documented the risks and internal control
procedures in their Strategic Business Unit;
• they have identified any changes in business, operations and computer
systems and the risks that may arise from those changes;
• the risk management and internal compliance and control systems are
appropriate and operating efficiently and effectively; and
• any weaknesses in the risk management and internal compliance and
control systems have been identified and remedial action taken.
ETHICAL BEHAVIOUR
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:
• a Code of Conduct for both Directors and members of the Executive
Management Team of the Group and stipulated that each Director
comply with the Code; and
• a Corporate Mission, Objectives, and Core Values Statement which
establishes principles to guide all employees in the day to day
performance of their individual functions within the Group.
While BSP’s Corporate Governance Principles provides that the Board must
ensure it maintains an appropriate mix of skills and experience without
gender bias, BSP has not adopted a standalone Board diversity policy,
which complies with Recommendation 1.5.
To ensure the maintenance of high standards of corporate behaviour on an
ongoing basis, the Board encourages Senior Management to periodically
issue staff Toksaves to reinforce both the Code and Core Values Statements.
All Directors are encouraged to maintain membership of an appropriate
Directors’ Association to keep abreast of current trends in Directors’ duties,
responsibilities and corporate governance issues.
BSP is committed to a culture in which it is safe and acceptable for
employees, customers and suppliers to raise concerns about poor or
unacceptable practices, irregularities, corruption, fraud and misconduct.
The Group has adopted a whistle-blowing policy that is designed to support
and encourage staff to report in good faith matters such as:
• unacceptable practices;
•
irregularities or conduct which is an offence or a breach of laws of the
countries in which BSP operates in (actions and decisions against the
laws of relevant countries including non-compliance);
• corruption;
• fraud;
• misrepresentation of facts;
• decisions made and actions taken outside established BSP policies &
procedures;
• sexual harassment;
• abuse of Delegated Authorities;
• misuse of Group assets;
• disclosures related to miscarriages of justice;
• 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; and
• breach of statutory codes of practice.
BSP’s Code of Conduct for Employees and Directors are available at www.
bsp.com.pg in the Investor Relations section.
36
CORPORATE GOVERNANCE
Directors and management of the Group are subject to Securities Act 1997
restrictions for buying, selling or subscribing for securities in the Group
if they are in possession of inside information, i.e. information which is
not generally available and, if it were generally available, a reasonable
person would expect to have a material effect on the price or value of the
securities of the Group.
Further, Directors and management may only trade in the securities of
the Group, subject to the foregoing insider trading restrictions, during
each of the eight weeks following the announcements of half yearly
profit and yearly profit or the date of issue of a prospectus. Management
should discuss proposed share trades with the Chief Executive Officer in
advance, who in turn will keep the Chairman of the Board appraised of
management activities. Directors should discuss proposed share trades
with the Chairman in advance.
In addition, Directors and management must not trade in any other entity if
inside information on such entity comes to the attention of the Director or
management by virtue of holding office as an Officer of the Group.
BSP’s Code of Conduct also requires its employees to act with high
standards of honesty, integrity, fairness and equity in all aspects of their
employment with BSP.
MARKET DISCLOSURE
The Group’s continuous disclosure regime is fundamental to the rights
of Shareholders to receive information concerning their securities. An
important aspect of the Group’s shareholder communication policy is to
comply with the continuous disclosure regime and to implement best
practice disclosure policy. BSP has adopted a Continuous Disclosure Policy.
This is available at www.bsp.com.pg in the Investor Relations section.
Market announcements are posted to BSP’s website immediately after
release to the market. All market announcements made by BSP since 2012
are currently available on the website. Where BSP provides financial results’
briefings to analysts or media, these briefings are published on the website
as soon as possible after the event. In any event, no material information
which has not been previously released to the market is covered in such
briefings. The material upon which the briefing is based (such as slides or
presentations) is released to the market prior to the briefing.
The Group’s insider trading rules are important adjuncts to the continuous
disclosure regime in ensuring that Shareholders are given fair access to
material information regarding securities. BSP seeks to limit the opportunity
for insider trading in its own securities through its continuous disclosure
policies and the dealing rules applying to its employees and Directors. BSP
has adopted a Securities Dealing Policy. This is available at www.bsp.com.
pg in the Investor Relations section.
SHAREHOLDER COMMUNICATIONS
BSP commits to dealing fairly, transparently and openly with both current
and prospective Shareholders using available channels and technologies to
communicate widely and promptly. BSP commits to facilitating participation
in shareholder meetings, and dealing promptly with shareholder enquiries.
Our Shareholder Communication Policy is built around compliance with
disclosure obligations and aspiring to be at the forefront of best practice
in disclosure. Our framework for communicating with Shareholders is to
concisely and accurately communicate:
• the BSP strategy;
• how we implement that strategy; and
• the financial results consequent upon our strategy and its
implementation.
The Group uses shareholder forums such as the Annual General Meeting,
and quarterly investor briefings, within disclosure policies, to communicate
financial performance and strategies.
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 CORPORATE GOVERNANCE
BSP’s Shareholder Communication Policy is available at www.bsp.com.pg
in the Investor Relations section.
Consistent with Recommendation 6.4, BSP gives Shareholders the option
to send and receive communications from BSP and its share registry
electronically. From 2017, BSP and its share registry will use technology
to facilitate the participation of Shareholders in meetings consistent with
Recommendation 6.3.
To facilitate effective communication between BSP and its Shareholders,
potential investors, analysts and other financial markets participants, BSP
conducts periodic market briefings, including half and full year results
announcements and attendance at conferences. Shareholders, potential
investors, analysts and other financial markets participants are given
access to BSP Directors and Senior Management at these events, and
the presentation material provided at these events announcement to
the market prior to commencement and subsequently uploaded to BSP’s
website.
REMUNERATION
Executive Remuneration
BSP remuneration policy for Senior Management (including the Chief
Executive Officer and the Chief Financial Officer) is comprised of a fixed
component and an at risk component that is a combination of short term
rewards and long term incentives.
Remuneration packages are approved by the Remuneration and
Nomination Committee, and details are provided by the Committee to the
Board.
Employee Share Option Plan
In 2014, the Board approved an employee share option plan. The options
are paid out as cash and are fully taxed. Participants are not entitled to
receive grants of shares or share options. This plan is available for use but
is not currently in use.
Long Term Incentive Plan
BSP also has a Long Term Incentive Plan (LTIP) for certain senior employees.
The LTIP is currently in use.
While performance rights are calculated by reference to earnings per share
(EPS), participants are not entitled to receive grants of shares or share
options. Rather, participants are entitled to receive an amount up to 10%,
15% or 30% of their fixed annual remuneration depending on their level
of seniority.
The LTIP runs on a two year performance cycle, commencing on 1 January
in the first year and ending on 31 December the following year.
The LTIP is administered by the Remuneration and Nomination Committee,
who reviews and endorses the proposed EPS performance target,
employee participation, employee awards and any planned changes to the
Board for approval.
If the EPS target for a cycle is achieved, the matrix set out below is used to
determine the award at the end of that cycle.
Exercising the performance rights is subject to the condition that BSP’s net
profit after tax (NPAT) for the vesting year is above BSP’s NPAT in the issuing
year.
Fixed remuneration is reviewed at the time of contract renewal taking
into account the nature of the role, comparable market pay levels, and
individual and business performance.
Participants are personally responsible for any income tax liability in
respect of payments made under the LTIP.
Members of Senior Management who serve as Directors of subsidiaries of
BSP receive no fees for their service as a Director.
EPS target
Non-Executive Director Remuneration
Non-Executive Directors are remunerated on a fixed basis within an
aggregate Directors’ fee pool approved periodically by Shareholders.
Under the Constitution, the Board determines the total amount paid to
each Non-Executive Director as remuneration, subject to the aggregate
amount not exceeding the amount fixed by the Shareholders in the Annual
General Meeting. Shareholders are required to approve any change to this
aggregate amount. In 2014, the Shareholders approved an increase in the
pool to PGK 2.5 million.
1
2
3
[As recommended by the
Remuneration and Nomination
Committee and approved by the
Board each LTIP cycle]
EPS target
achieved
90–100%
80–89%
Performance
Rights
100%
50%
79% and below
0%
If a participant resigns their employment for health reasons or retires prior
to vesting, awards may be made in full or pro rata at the time of exit, at
the discretion of the Board. If a participant resigns or their employment
is terminated on disciplinary grounds prior to the vesting, awards are not
granted.
WEBSITE
Directors may also be reimbursed their reasonable travel and other
expenses incurred in attending to BSP business. Directors may also receive
additional remuneration if they, perform any additional services at the
request of the Board.
Shareholders can access BSP’s financial reports, market announcements,
corporate governance policies and various other shareholder resources
from the “Investor Relations” tab of its website at www.bsp.com.pg.
Non-Executive Directors are not paid any retirement or superannuation
benefits, nor do they participate in any share or share option programmes
or the employee incentive schemes described below.
A table of fees paid to Directors during 2018 is produced on page 65.
Employee Incentive Schemes
BSP has established the following incentive arrangements to assist in
the recruitment, retention and motivation of Senior Management and
employees, and to directly link performance and behaviour to long term
financial results and shareholder value.
BSP does not currently have any equity-based remuneration schemes.
Under BSP’s employee incentive arrangements below, participants are not
currently entitled to receive grants of shares or share options.
Shareholders can also access details of BSP’s history, business and structure
from the “About Us” tab of the website.
SUSTAINABILITY RISKS
identifies and manages
its material exposures to economic,
BSP
environmental and social sustainability risks within the risk management
framework described above. In particular, BSP has a separate Social and
Environmental Management Systems Policy which identifies and manages
these risks. This policy applies to all Directors and employees of BSP.
Under the Social and Environmental Management Systems Policy, BSP
has adopted performance standards, completes due diligence and risk
assessments, and undertakes incident and grievance reporting. BSP will
not support or assist any project that causes or is likely to breach social or
environmental regulation in the countries in which it operates.
37
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 FINANCIAL STATEMENTS
DIRECTORS’ REPORT
for the Year Ended 31 December 2018
The Directors take pleasure in presenting the Financial Statements of the Bank of South Pacific Limited and its subsidiaries (Bank
and the Group) for the year ended 31 December 2018. In order to comply with the provisions of the Companies Act 1997, the
Directors report as follows:
Principal activities
The principal activity of the Bank of South Pacific Limited (BSP) is the provision of commercial banking and finance services. The Group’s activities also
include stock broking, fund management and life business services throughout Papua New Guinea and the Asia Pacific region. BSP is a company 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 Institutions Act of Papua New Guinea. The Group is also licensed to operate in the Solomon Islands, Fiji Islands, Cook Islands, Samoa, Tonga,
Vanuatu and Cambodia. The registered office is at Douglas Street, Port Moresby.
Review of operations
For the year ended 31 December 2018, the Group’s profit after tax was K844.072 million (2017 K757.003 million). The Bank’s profit after tax was K787.446
million (2017: K720.953 million).
The Directors are of the view that 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 the attached financial statements and notes thereto are in accordance with the PNG Companies Act 1997, including
compliance with accounting standards and give a true and fair view of the financial position and performance of the Bank and the Group.
The results of the Bank and the Group operations during the financial year have, in the opinion of the Directors, not been materially affected by items
of an abnormal nature, other than those disclosed in the financial statements. In the opinion of the Directors, no circumstances have arisen, that make
adherence to the existing method of valuation of assets or liabilities 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 attributed to current assets in the financial
statements misleading.
No contingent liability other than that disclosed in the notes to the attached financial 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 affect the Bank and the Group in its ability to meet
obligations as and when they fall due.
Dividends
Dividend payments totalling K597.364 million were paid in 2018 (2017: K521.858 million). A detailed breakup of this is provided in Note 23.
Directors and officers
The following were directors of the Bank of South Pacific Limited at 31 December 2018:
Sir K G Constantinou, OBE
Mr. S Davis
Ms. F Talao
Mr. G Robb, OAM
Mr. A Sam
Mr. R Fleming, CSM
Mr. E B Gangloff
Mr. R Bradshaw
Mr. A Mano
Dr. F Lua’iufi
Details of directors’ tenure and directors and executives’ remuneration during the year are provided in Note 27 of the Notes to the Financial Statements.
The CEO Robin Fleming is the only executive director.
The company secretary is Mary Johns.
40
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
DIRECTORS’ REPORT
for the Year Ended 31 December 2018
Independent Auditor’s Report
The financial statements have been audited and should be read in conjunction with the independent auditor’s report on page 91. Details of amounts paid
to the auditors for audit and other services are shown in Note 41 of the Notes to the Financial Statements.
Donations and Sponsorships
Donations and sponsorship by the Group during the year amounted to K8.004 million (2017: K6.457 million).
Change in accounting policies
Changes to accounting policies that impacted the Group’s result during the year are included in Note 1(A) of the Notes to the Financial Statements.
For, and on behalf of, the Directors.
Dated and signed in accordance with a resolution of the Directors in Port Moresby this 27th day of February 2019.
Sir Kostas G. Constantinou, OBE
Chairman
Robin Fleming, CSM
Group Chief Executive Officer/Director
41
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
STATEMENTS OF COMPREHENSIVE INCOME
for the Year Ended 31 December 2018
All amo unts ar e ex pressed in K’00 0
Note
2018
2017
2018
201 7
Consolidated
Bank
Interest income
Interest expense
Net interest income
Fee and commission income
Other income
Net banking operating income
Net insurance premium income
Investment revenue
Increase in policy liabilities
Policy maintenance and investment expenses
Claims, surrender and maturities
Share of profits from associates and jointly controlled entities
Net insurance operating income
2
2
3
4
39(b)
39(a)
1,561,691
1,432,640
1,460,484
1,349,134
(180,895)
(154,964)
(166,090)
(141,106)
1,380,796
1,277,676
1,294,394
1,208,028
382,508
363,488
373,673
307,171
347,892
353,528
345,919
310,059
2,126,792
1,958,520
1,995,814
1,864,006
143,097
156,547
(71,616)
(111,385)
(97,295)
19,565
38,913
131,022
137,479
(64,813)
(95,078)
(90,393)
21,613
39,830
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Net operating income before impairment and operating expenses
2,165,705
1,998,350
1,995,814
1,864,006
Impairment on loans and advances
Impairment on subsidiary
Operating expenses
Profit before income tax
Income tax expense
Net profit for the year
Other comprehensive income
Items that may be subsequently reclassified to profit or loss
Translation of financial information of foreign operations
to presentation currency
Items that will not be reclassified to profit or loss:
Recognition of deferred tax on asset revaluation reserve
Net movement in asset revaluation
Other comprehensive income, net of tax
Total comprehensive income for the year
13
8
5
6
24
24
24
(82,380)
(77,678)
(71,599)
(65,111)
-
-
(803)
(6,749)
(887,157)
(852,148)
(806,873)
(777,891)
1,196,168
1,068,524
1,116,539
1,014,255
(352,096)
(311,521)
(329,093)
(293,302)
844,072
757,003
787,446
720,953
1,052
48,326
1,267
25,589
4,948
1,632
7,632
(10,165)
38,064
76,225
5,435
8
6,710
(8,977)
30,314
46,926
851,704
833,228
794,156
767,879
Earnings per share - basic and diluted (toea)
23
180.6
162.0
168.5
154.3
The attached notes form an integral part of these financial statements.
42
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
STATEMENTS OF FINANCIAL POSITION
As at 31 December 2018
All amounts are expressed in K’000
Note
2018
2017
2018
2017
Consolidated
Bank
ASSETS
Cash and balances with Central Bank
Treasury and Central Bank bills
Amounts due from other banks
Statutory deposits with Central Banks
Other financial assets
Loans, advances and other receivables from
customers
Property, plant and equipment
Assets subject to operating lease
Investment in associates and joint ventures
Investment in subsidiaries
Intangible assets
Investment properties
Deferred tax assets
Tax receivable
Other assets
Total assets
LIABILITIES
Amounts due to other banks
Customer deposits
Subordinated debt securities
Other liabilities
Provision for income tax
Other provisions
Total liabilities
SHAREHOLDERS’ EQUITY
Ordinary shares
Retained earnings
Other reserves
Equity attributable to the members of the company
Minority interests
Total shareholders’ equity
Total equity and liabilities
10
11
12
16
13
14
14
9
8
7
15
6
6
17
18
19
20
21
6
22
23
24
24
1,253,449
2,494,700
854,019
1,685,544
2,555,443
1,205,196
3,298,626
949,214
1,598,378
2,457,327
966,707
2,480,356
796,180
1,622,035
2,073,873
985,803
3,287,162
887,337
1,541,096
2,062,341
12,530,649
11,209,493
11,232,725
10,094,470
693,277
52,433
175,579
-
174,623
153,665
208,444
12,753
205,482
738,670
70,689
154,135
-
107,818
134,020
181,934
-
264,361
538,181
52,433
20,038
347,597
152,551
-
234,391
17,020
162,293
574,305
70,689
19,157
338,400
100,750
-
200,021
-
202,142
23,050,060
22,369,861
20,696,380
20,363,673
51,539
160,400
116,019
238,272
18,232,766
17,901,692
16,959,170
16,843,756
75,525
1,623,992
-
194,103
75,525
1,382,888
31,708
189,313
75,525
766,981
-
177,799
75,525
596,633
25,231
173,254
20,177,925
19,741,526
18,095,494
17,952,671
372,364
2,156,873
339,320
2,868,557
3,578
373,001
1,904,462
346,388
2,623,851
4,484
372,364
1,976,138
252,384
2,600,886
-
373,001
1,777,627
260,374
2,411,002
-
2,872,135
2,628,335
2,600,886
2,411,002
23,050,060
22,369,861
20,696,380
20,363,673
Sir Kostas G. Constantinou OBE
Chairman
Robin Fleming, CSM
Group Chief Executive Officer/Director
The attached notes form an integral part of these financial statements.
43
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
for the Year Ended 31 December 2018
BANK
Share capital
Reserves
Retained earnings Minority Interests
Total
All amounts are expressed in K’000
Note
Balance as at 1 January 2017
373,101
209,375
Net profit
Other comprehensive income
Total comprehensive income
Dividends paid during the year
Share buyback
Total transactions with owners
Recognition of deferred tax
Transfer from Asset Revaluation Reserve
BSP Life policy reserve
Balance at 31 December 2017
IFRS 9 transition provisions
Restated balance at 1 January 2018
Net profit
Other comprehensive income
Total comprehensive income
Dividends paid during the year
Share buyback
Total transactions with owners
BSP Life policy reserve
Transfer from Asset Revaluation Reserve
Balance at 31 December 2018
GROUP
Balance as at 1 January 2017
Net profit
Other comprehensive income
Total comprehensive income
Dividends paid during the year
Share buyback
Loss attributable to minority interests
Total transactions with owners
Recognition of deferred tax
Transfer from Asset Revaluation Reserve
BSP Life policy reserve
Balance at 31 December 2017
IFRS 9 transition provisions
Restated balance as at 1 January 2018
Net profit
Other comprehensive income
Total comprehensive income
Dividends paid during the year
Share buyback
23
23
24
24
24
23
23
24
24
23
23
24
24
24
24
23
24
23
23
Loss attributable to minority interests
24/23
Total transactions with owners
Transfer from asset revaluation reserve
BSP Life policy reserve
Balance at 31 December 2018
24
24
-
-
-
-
(100)
(100)
-
-
-
-
46,926
46,926
-
-
-
-
(1,418)
5,491
373,001
260,374
-
-
373,001
260,374
-
-
-
-
(637)
(637)
-
-
372,364
-
6,710
6,710
-
-
-
3,416
(18,116)
252,384
373,101
266,090
-
-
-
-
(100)
-
(100)
-
-
-
373,001
-
-
76,225
76,225
-
-
-
-
-
(1,418)
5,491
346,388
-
373,001
346,388
-
-
-
-
(637)
-
(637)
-
-
372,364
-
7,632
7,632
-
-
-
-
(18,116)
3,416
339,320
The attached notes form an integral part of these financial statements.
44
1,576,974
720,953
-
720,953
(518,955)
-
(518,955)
3,739
407
(5,491)
1,777,627
(10,221)
1,767,406
787,446
-
787,446
(593,414)
-
(593,414)
(3,416)
18,116
1,976,138
1,670,595
757,003
-
757,003
(521,858)
-
67
(521,791)
3,739
407
(5,491)
1,904,462
(9,903)
1,894,559
844,072
844,072
(597,364)
-
906
(596,458)
18,116
(3,416)
2,156,873
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,159,450
720,953
46,926
767,879
(518,955)
(100)
(519,055)
3,739
(1,011)
-
2,411,002
(10,221)
2,400,781
787,446
6,710
794,156
(593,414)
(637)
(594,051
-
2,600,886
4,551
2,314,337
-
-
-
-
-
(67)
(67)
-
-
-
757,003
76,225
833,228
(521,858)
(100)
-
(521,958)
3,739
(1,011)
-
4,484
2,628,335
-
(9,903)
4,484
2,618,432
-
-
-
-
-
(906)
(906)
-
-
844,072
7,632
851,704
(597,364)
(637)
-
(598,001)
-
-
3,578
2,872,135
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 STATEMENTS OF CASH FLOWS
for the Year Ended 31 December 2018
All amounts are expressed in K’000
Note
2018
2017
2018
2017
Consolidated
Bank
CASH FLOW FROM OPERATING ACTIVITIES
Interest received
Fees and other income
Interest paid
Amounts paid to suppliers and employees
Operating cash flow before changes in operating assets and
liabilities
1,544,691
1,432,265
1,442,960
1,330,842
819,700
(183,137)
(666,153)
696,498
(145,505)
(617,878)
736,604
(169,364)
(636,764)
710,265
(135,083)
(646,253)
28
1,515,101
1,365,380
1,373,436
1,259,771
Increase in loans, advances and other receivables from customers
(1,377,537)
(1,164,516)
(1,188,543)
Increase in statutory deposits with the Central Banks
(87,166)
(123,723)
(80,939)
Increase in customer deposits
Net cash flow from operations before income tax
Income taxes paid
Net cash flow from operating activities
CASH FLOW FROM INVESTING ACTIVITIES
(Increase)/decrease in government securities
Expenditure on property, plant and equipment
Expenditure on software development costs
Proceeds from disposal of property, plant and equipment
Additional funding of subsidiaries
Net cash flow used in investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Share buyback
Dividends paid
Proceeds from borrowings
Principal and interest repayments of borrowings
Net cash flow used in financing activities
Net (decrease)/increase in cash and cash equivalents
Effect 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
(887,123)
(100,566)
710,449
982,531
(72,321)
(48,109)
2,165
466,549
516,947
999,732
1,076,873
250,889
354,843
6
(420,430)
(293,697)
(402,213)
(282,645)
96,517
783,176
(47,370)
699,886
695,907
(490,860)
785,053
(386,113)
(32,766)
(79,163)
(118,518)
(25,804)
(50,096)
(75,468)
966
-
2,182
966
-
(10,000)
(26,889)
584,944
(657,292)
674,747
(531,267)
23
23
21
21
28
28
(637)
(100)
(637)
(100)
(597,364)
(521,858)
(593,414)
(518,955)
80,273
33,127
80,273
33,127
(102,866)
(620,594)
(101,973)
(590,804)
(102,866)
(616,644)
(101,973)
(587,901)
60,867
(464,920)
10,733
(419,282)
1,052
45,760
1,267
26,845
1,994,010
2,413,170
1,634,868
2,027,305
2,055,929
1,994,010
1,646,868
1,634,868
The attached notes form an integral part of these financial statements.
45
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
1. ACCOUNTING POLICIES
•
The principal accounting policies adopted in the preparation of these
Financial Statements are set out below. These policies have been
consistently applied to all the periods presented unless otherwise
stated. The assets and liabilities are presented in order of liquidity on the
Statements of Financial Position.
A (i) Basis of Presentation and General Accounting
Policies
•
The Financial Statements of the Bank of South Pacific Limited (the Bank)
and the Group are prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards
Board and interpretations of these standards issued by the International
Financial Reporting Interpretations Committee. They are prepared on the
basis of the historical cost convention, as modified by the revaluation of
certain non-current assets, financial instruments and liabilities.
Estimates and assumptions have been used to achieve conformity with
generally accepted accounting principles in the preparation of these
financial statements. These assumptions and estimates affect balances of
assets and liabilities, contingent liabilities and commitments at the end of
the reporting period, and amounts of revenues and expenses during the
reporting period. Whilst the estimates are based on management’s best
knowledge of current events and conditions, actual results may ultimately
differ from those estimates.
The financial statements are presented in Papua New Guinea Kina,
expressed in thousands of Kina, as permitted by International Financial
Reporting Standards.
Standards, amendments and interpretations effective in the year ended
31 December 2018
The following standards, amendments and interpretations to existing
standards became applicable for the first time during the accounting
period beginning 1 January 2018:
‘Financial
Instruments’ replaced the guidance
IAS
IFRS 9,
39 with a standard that is less complex and principles based.
The new standard simplifies the model for classifying and
instruments and aligns hedge accounting
recognising financial
more closely with common risk management practices.
IFRS
IAS 39’s
9’s new
incurred credit loss approach to an expected credit loss model.
is a move away from
impairment model
in
Refer to notes A (ii) for further details of the impact of IFRS 9 on
the Group’s accounting policies and 2018 financial statements.
IFRS 15 ‘Revenue from contracts with customers’ replaces IAS 11 and
IAS 18. The new standard is based on the principle that revenue is
recognised when control of a good or service transfers to a customer.
The entity now adopts a new 5-step process for the recognition of
revenue:
identify contracts with customers
ͳ
ͳ
identify the separate performance obligations
ͳ determine the transaction price of the contract
ͳ allocate the transaction price to each of the separate performance
obligations, and
recognise the revenue as each performance obligation is satisfied
ͳ
including
The Bank has implemented IFRS 15 with effect from 1 January
2018 and assessed the impact of the new standard on its financial
statements,
revenue
and expense items, the timing and measurement of revenue
recognition, as well as additional qualitative and quantitative
implementation of IFRS 15 has not resulted
disclosures. The
impact to the bank’s operation and policies.
in a significant
the presentation of certain
•
•
46
Amendments to IFRS 2 ‘Share based payments’ on clarifying how to
account for certain types of share-based payment transactions. This
amendment clarifies the measurement basis for cash-settled, share-
based payments and the accounting for modifications that change
an award from cash-settled to equity-settled. It also introduces an
exception to the principles in IFRS 2 that will require an award to be
treated as if it was wholly equity-settled, where an employer is obliged
to withhold an amount for the employee’s tax obligation associated
with a share-based payment and pay that amount to the tax authority.
Amendments to IFRS 4, ‘Insurance contracts’ regarding implementation
of IFRS 9. These amendments introduce two approaches: an overlay
approach and a deferral approach. The amended standard will:
ͳ
give all companies that issue insurance contracts the option to
recognise in OCI, rather than profit or loss, the volatility that could
arise when IFRS 9 is applied before the new insurance contracts
standard is issued; and
give companies whose activities are predominantly connected
with insurance an optional temporary exemption from applying
IFRS 9 until 2021, in which case they will continue to apply IAS 39.
ͳ
•
•
•
Amendments to IAS 40, ‘Investment property’ relating to transfers
of investment property. These amendments clarify that to transfer
to, or from, investment properties there must be a change in use. To
conclude if a property has changed use there should be an assessment
of whether the property meets the definition. This change must be
supported by evidence.
Annual improvements 2014 – 2016 makes minor changes to IFRS
1 on first-time adoption of IFRS and IAS 28 regarding measuring an
associate or joint venture at fair value.
IFRIC 22, ‘Foreign currency transactions and advance consideration’
addresses foreign currency transactions or parts of transactions
where there is consideration that is denominated or priced in a
foreign currency. The interpretation provides guidance for when
a single payment/receipt is made as well as for situations where
multiple payments/receipts are made.
All other amendments have not had a significant impact to the Group.
Standards, amendments and interpretations issued but not yet effective
for the year ended 31 December 2018 or adopted early
The following standards, amendments and interpretations to existing
standards have been published and are mandatory for the entity’s
accounting periods beginning on or after 1 January 2019 or later periods,
but the entity has not early adopted them:
•
IFRS 16, ‘Leases’ (effective 1 January 2019) replaces the guidance in
IAS 17 and will have a significant impact on accounting by lessees.
The previous distinction under IAS 17 between finance leases and
operating leases for lessees has been removed. IFRS 16 now requires
a lessee to recognise a lease liability representing future lease
payments and a ‘right-of-use asset’ for virtually all lease contracts.
There is an optional exemption for certain short-term leases and
leases of low-value assets. Under IFRS 16, a contract is, or contains,
a lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration.
The entity expects that certain leases of property and equipment
that are currently accounted
leases will,
from January 2019, be required to be recognised as right-
of-use assets and depreciated, with a corresponding
lease
is currently assessing the new standard
liability. The Bank
impact on the financial statements.
to reliably estimate the
for as operating
•
Amendment to IFRS 9 on prepayment features with negative
compensation (effective 1 January 2019). This amendment confirms
that when a financial liability measured at amortised cost is modified
without this resulting in de-recognition, a gain or loss should be
recognised immediately in profit or loss. The gain or loss is calculated
as the difference between the original contractual cash flows and the
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
•
•
•
•
•
•
•
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
modified cash flows discounted at the original effective interest rate.
IFRIC 23, ‘Uncertainty over income tax treatments’ (effective 1 January
2019) clarifies how the recognition and measurement requirements
of IAS 12 ‘Income Taxes’ are applied where there is uncertainty over
income tax positions. IFRIC 23 explains how to recognise and measure
deferred and current income tax assets and liabilities where there is
uncertainty over a tax treatment.
It requires a current measurement model where estimates are re-
measured at each reporting period. Contracts are measured using
the building blocks of:
o Discounted probability-weighted cash flows
o An explicit risk adjustment; and
o A contractual service margin (“CSM”) representing the
unearned profit of the contract which is recognised as revenue
over the coverage period.
Annual improvements 2015 – 2017 (effective 1 January 2019). These
amendments include minor changes to:
ͳ
IFRS 3 ‘Business combination’ – a company remeasures its
previously held interest in a joint operation when it obtains
control of the business.
IFRS 11 ‘Joint arrangements’ – a company does not remeasure
its previously held interest in a joint operation when it obtains
control of the business.
IAS 12 ‘Income taxes’ – a company accounts for all income tax
consequences of dividend payments in the same way.
IAS 23 ‘Borrowing costs’ – a company treats as part of general
borrowings any borrowings originally made to develop an asset
when the asset is ready for its intended use or sale.
ͳ
ͳ
ͳ
Amendments to IAS 28 ‘Investments in associates’ on long term
interests in associates and joint ventures (effective 1 January 2019).
These amendments clarify that long-term interests in an associate or
joint venture to which the equity method is not applied should be
accounted for using IFRS 9. This includes the impairment requirements
in IFRS 9.
Amendments to IAS 19, ‘Employee benefits’ on plan amendment,
curtailment or settlement (effective 1 January 2019). These
amendments require an entity to:
ͳ
use updated assumptions to determine current service cost
and net interest for the remainder of the period after a plan
amendment, curtailment or settlement, and
recognise in profit or loss as part of past service cost, or a gain or loss
on settlement, any reduction in a surplus, even if that surplus was
not previously recognised because of the impact of the asset ceiling.
ͳ
Amendments to IFRS 3 – definition of a business (effective 1
January 2020). This amendment revises the definition of a business.
According to feedback received by the IASB, application of the
current guidance is commonly thought to be too complex, and it
results in too many transactions qualifying as business combinations.
Amendments to IAS 1 and IAS 8 on the definition of ‘material’ (effective
1 January 2020). These amendments to IAS 1, ‘Presentation of financial
statements’, and IAS 8, ‘Accounting policies, changes in accounting
estimates and errors’, and consequential amendments to other IFRSs:
the Conceptual
i) use a consistent definition of materiality throughout IFRSs
and
Financial Reporting.
ii) clarify the explanation of the definition of material; and
iii) incorporate some of the guidance in IAS 1 about immaterial
information.
Framework
for
IFRS 17 ‘Insurance contracts” (effective 1 January 2022) replaces
IFRS 4. IFRS 17 will fundamentally change the accounting by all
entities that issue insurance contracts and investment contracts with
discretionary participation features.
The standard allows a choice between recognising changes in discount rates
either in the statement of profit or loss or directly in other comprehensive
income. The choice is likely to reflect how insurers account for their
financial assets under IFRS 9.
An optional, simplified premium allocation approach is permitted for the
liability for the remaining coverage for short duration contracts, which are
often written by non-life insurers.
There is a modification of the general measurement model called the
‘variable fee approach’ for certain contracts written by life insurers where
policyholders share in the returns from underlying items. When applying
the variable fee approach the entity’s share of the fair value changes of
the underlying items is included in the contractual services margin. The
results of insurers using this model are therefore likely to be less volatile
than under the general model.
The new rules will affect the financial statements and key performance
indicators of all entities that issue insurance contracts or investments
contracts with discretionary participation features. The group is in the
process of assessing the impact of IFRS 17 to its insurance entities: BSP Life
Fiji and BSP Life PNG.
A (ii) IFRS 9 Transitional Impact effective 1st
January 2018
The Group has adopted IFRS 9 as issued by the IASB in July 2014 with a date
of transition of 1 January 2018, which resulted in changes in accounting
policies and adjustments to the amounts previously recognised in the
financial statements. The Group did not early adopt IFRS 9 in previous
periods.
As permitted by the transitional provisions of IFRS 9, the Group elected not
to restate comparative figures. Any adjustments to the carrying amounts
of financial assets and liabilities at the date of transition were recognised
in the opening retained earnings of the current period. Consequently, for
notes disclosures, the consequential amendments to IFRS 7 disclosures
have also only been applied to the current period. The comparative period
notes disclosures repeat those disclosures made in the prior year.
The adoption of IFRS 9 has resulted in changes to accounting policies
for recognition, classification and measurement of financial assets
and financial liabilities and impairment of financial assets. IFRS 9 also
significantly amends other standards dealing with financial instruments
such as IFRS 7 ‘Financial Instruments: Disclosures’.
Set out below are disclosures relating to the impact of the adoption of IFRS
9 on the Group. Further details of the specific IFRS 9 accounting policies
applied in the current period (as well as the previous IAS 39 accounting
policies applied in the comparative period) are described in more detail
in Note 33.
47
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
Classification and measurement of financial instruments
The measurement category and the carrying amount of financial assets and liabilities in accordance with IAS 39 and IFRS 9 at 1 January 2018 for the Group
are compared as follows:
Measurement Category
Carrying Amount
Measurement Category
Carrying Amount
IAS 39
IFRS 9
Financial Assets
Cash and balances with central
banks and other banks
Amortised cost (Loans and receivables)
3,752,788
Amortised cost
PGK'000
Loans and Advances
Amortised cost (Loans and receivables)
11,209,493
Amortised cost
Investment securities
Amortised cost (Held to maturity)
5,608,905
Amortised cost
FVPL (Designated)
147,048 FVPL (Designated)
20,718,234
PGK'000
3,752,788
11,210,870
5,593,381
147,048
20,704,087
There were no changes to the classification and measurement of financial liabilities.
Reconciliation of statement of financial position balances from IAS 39 to IFRS 9
The Group performed a detailed analysis of its business models for managing financial assets and analysis of their cash flow characteristics.
The following table reconciles the carrying amounts of financial assets, from their previous measurement category in accordance with IAS 39 to their new
measurement categories upon transition to IFRS 9 on 1 January 2018:
Amortised Cost
PGK'000
PGK'000
PGK'000
PGK'000
IAS 39 carrying amount
31 December 2017
Reclassification Re-measurement
IFRS 9 carrying
amount
1 January 2018
Cash and balances with central banks and other banks
Opening balance under IAS 39 and closing balance under
IFRS 9
Loans and Advances
Opening balance under IAS 39
Re-measurement: ECL allowance
Closing balance under IFRS 9
Investment securities – amortised cost
Opening balance under IAS 39
Addition: Financial assets held to maturity
Re-measurement: ECL allowance
Closing balance under IFRS 9
Investment securities – Held to maturity
Opening balance under IAS 39
Subtraction: To amortised cost (IFRS 9)
Closing balance under IFRS 9
Fair value through profit or loss (FVTPL)
Trading Assets
Opening balance under IAS 39 and closing balance under
IFRS 9
3,752,788
11,209,493
-
-
-
-
-
5,608,905
-
-
147,048
-
-
-
-
-
5,608,905
-
-
-
(5,608,905)
-
-
-
-
1,377
-
-
-
(15,524)
-
-
-
-
-
3,752,788
-
-
11,210,870
-
-
-
5,593,381
-
-
-
147,048
Total re-measurement loss of K14.147 million, net of deferred tax impact of K4.247million, was recognised in opening reserves at 1 January 2018.
Debt instruments previously classified as ‘held to maturity’ are now classified as ‘measured at amortised cost’ as the previous category under IAS 39 was
‘retired’. There was no change to the measurement basis.
There were no other changes related to classification of financial assets.
48
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
Reconciliation of impairment allowance balance from IAS 39 to IFRS 9
The following table reconciles the Group’s prior period’s closing impairment allowance measured in accordance with the IAS 39 incurred loss model to
the new impairment allowance measured in accordance with the IFRS 9 expected loss model at 1 January 2018:
Measurement category
Loan loss allowance
under IAS 39
Reclassification
Re-measure-
ment
Loan loss allowance
under IFRS 9
PGK’000
PGK’000
PGK’000
PGK’000
Loans and receivables (IAS 39)/Financial assets at
amortised cost (IFRS 9)
Cash and balances with central banks
Loans and advances to Customers
Investment securities
Total loan loss allowance loans and receivables
Loan commitments and financial guarantee contracts
Provisions (Letters of credit)
Provisions (Financial guarantees)
Undrawn Loans & others
Total loan loss allowance loan commitments and
financial guarantee contracts
-
577,186
-
577,186
-
-
-
-
Total Loan loss allowance
577,186
-
-
-
-
-
-
-
-
-
-
(35,114)
(15,524)
(50,638)
3,567
3,198
29,726
36,491
(14,147)
-
542,072
(15,524)
526,548
3,567
3,198
29,726
36,491
563,039
B. Consolidation
The Financial Statements incorporate the assets and liabilities of all
controlled entities of the Group as at 31 December 2018, and their results
for the year then ended.
Controlled entities are those over which the Group has the power to govern
financial and operating policies, generally accompanied by a shareholding
that commands the majority of voting rights, and are commonly referred
to as subsidiaries.
Joint ventures are accounted for using the equity method in the Financial
Statements. Under the equity method of accounting, interests in joint
ventures are initially recognised at cost and adjusted thereafter to
recognise the Group’s share of the post-acquisition profits 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 entity (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 obligations or made payments on behalf of
the joint ventures.
Subsidiaries are accounted for at acquisition under the acquisition cost
method of accounting, where:
Interests in joint ventures classified as held for sale are accounted for under
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
•
•
•
acquisition cost is measured at fair value of assets transferred, equity
issued, liabilities assumed and any directly attributable costs of the
transaction;
identifiable net assets are recorded initially at acquisition, at their fair
values;
any excess of the acquisition cost over the relevant share of identifiable
net assets acquired is treated as goodwill, and any deficiency is
recognised directly in the Statement of Comprehensive Income.
All intercompany transactions and balances are eliminated.
C. Investment in Associates and Joint
Arrangements
Investments in Associates
Associates are entities over which the Group has significant, but not
controlling influence, generally accompanied by a shareholding conferring
between 20% - 50% of voting rights.
In the Financial Statements, these investments are accounted for under the
equity method.
Interests In Joint Arrangements
The Group applies IFRS 11 to all joint ventures. Under IFRS 11 investments in
joint arrangements are classified as either joint ventures or joint operations
depending on the contractual rights and obligations of each investor.
D. Revenue
income and expense are recognised
Interest income and expense
in the Statement of
Interest
Comprehensive Income on an accrual basis using the effective interest rate
(“EIR”) method. The income arising from the various forms of instalment
credit has been determined using the effective interest method.
Interest income includes coupons earned on inscribed stock, accrued
discount and premium on Treasury and Central Bank bills.
The bank and its subsidiaries adopted IFRS 9 as at 1 January 2018. Under
IFRS 9, interest income and interest expense for all financial instruments
measured at amortised cost is recognised using the effective interest rate
method which is similar to the requirements under IAS 39 for loans and
receivables. Under IFRS 9, interest income is recognised for Stage 1 and
Stage 2 financial assets measured at amortised cost by applying the EIR to
gross carrying amounts of the financial instruments. For Stage 3 financial
instruments, interest income is recognised by applying EIR on the net
carrying value of the financial instrument.
Short term insurance contracts
These contracts are the Term Life, Medical and Travel policies sold and
underwritten by BSP Health Care (Fiji) Limited and BSP Life PNG Limited.
These contracts protect the Group’s customers from the consequences of
events such as death, medical emergency or loss on travel. Guaranteed
benefits paid on occurrence of the specified insurance event are either fixed
or linked to the extent of the economic loss suffered by the policyholder.
There are no maturity or surrender benefits.
49
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
For all these contracts, premiums are recognised as revenue (earned
premiums) proportionally over the period of coverage. The portion of
premium received on in-force contracts that relates to unexpired risks
at the Statement of Financial Position date is reported as the unearned
premium liability. Premiums are shown before deduction of commission.
Claims and loss adjustment expenses are charged to income as incurred
based on the estimated liability for compensation owed to contract holders
or beneficiaries. They include direct and indirect claims settlement costs
and arise from events that have occurred up to the Statement of Financial
Position date even if they have not yet been reported to the Group. The
Group does not discount its liabilities for unpaid claims. Liabilities for
unpaid claims are estimated using the input of assessments for individual
cases reported to the Group and statistical analyses for the claims incurred
but not reported, and to estimate the expected ultimate cost of more
complex claims that may be affected by external factors (such as court
decisions).
Foreign exchange income/(losses)
Realised and unrealised gains or losses from foreign currency trading,
or from changes in the fair value of the trading assets and liabilities are
recognised as income in the Statement of Comprehensive Income in the
period in which they arise.
The liability for long term insurance contracts (principally Life Insurance)
has been determined in accordance with LPS 1.04 Valuation of Policy
Liabilities, issued by the Australian Prudential Regulation Authority.
The policy liability is calculated in a way that allows for the systematic
release of planned profit margins as services are provided to policy owners
and the revenues relating to those services are received (Margin on Services
methodology). Services used to determine profit recognition include the
cost of expected insurance claims and the allocation of future bonuses.
The liability is generally determined as the present value of all future
expected payments, expenses, taxes and profit margins reduced by the
present value of all future expected premiums and take into consideration
projected future bonuses. The liabilities are recalculated at each balance
date using best estimate assumptions. These assumptions 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 liabilities 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 constitute
cost recovery are taken to income when levied. Loan origination fees are
deferred over the expected term of the financial instrument according to
the effective interest method. The effective interest method uses the rate
that exactly discounts estimated future payments and receipts through the
expected life of the instrument or when appropriate, a shorter period to
the net carrying amount of the financial 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
the provision approximates the difference between the carrying amount
and the recoverable amount, which is the current best estimate of the
present value of expected future cash flows arising from the asset. All bad
debts are written off against the specific provision for loan impairment
in the period in which they are classified as irrecoverable. Subsequent
recoveries are credited to the provision for loan losses in the Statement of
Comprehensive Income.
General provisions for impairment are maintained to cover incurred losses
unidentified at balance date in the overall portfolio of loans, advances
and other receivables from customers. The provisions are determined
having regard to the level of risk weighted assets, economic conditions,
the general risk profile of the credit portfolio, past loss experience and
a range of other criteria. The amount necessary to bring the provisions
to their assessed levels, after write-offs, is charged to the Statement of
Comprehensive Income.
Impairment
For the year commencing 1 January 2018, the Group adopted IFRS 9 and
updated the accounting policy for impairment of financial assets held at
amortised cost to comply with IFRS 9 requirements as detailed below;
The Group assesses on a forward-looking basis the expected credit losses
(‘ECL’) associated with its debt instrument assets carried at amortised
cost and with the exposure arising from loan commitments and financial
guarantee contracts. The Group recognises a loss allowance for such losses
at each reporting date. The measurement of ECL reflects:
•
•
•
An unbiased and probability-weighted amount that is determined by
evaluating a range of possible outcomes;
The time value of money; and
Reasonable and supportable information that is available without
undue cost or effort at the reporting date about past events, current
conditions and forecasts of future economic conditions.
Note 33 provides more detail of how the expected credit loss allowance is
measured.
H. Goodwill
Goodwill represents the excess of the cost of any acquisition over the
acquirer’s interest in the fair value of the identifiable assets and liabilities
acquired as at the exchange transaction. Goodwill is reported in the
Statement of Financial Position as an intangible asset.
In determining goodwill, management considers various factors including
net selling price of the acquired business, existing market share, potential
growth opportunities, and other factors inherent in the acquired business.
This assessment is reviewed at each balance date, so that any indication
of impairment with implications 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 Group’s computer systems
are capitalised to the extent that benefits do not relate solely to revenue
that has already been brought to account and will contribute to the future
earning capacity of the economic entity. These costs are amortised over the
estimated economic life of four years using the straight-line method. Costs
associated with maintaining computer software programs are recognised
as an expense when incurred.
Loans are originated by providing funds directly to the borrower and are
recognised when cash is advanced to borrowers.
J. Property, plant and equipment
All loans, advances and other receivables from customers are subject to
continuous management review. A specific provision for loan impairment
is established if there is objective evidence that the Group will not be
able to collect all amounts due under the terms of loans. The amount of
Land and buildings are carried at revalued amounts, being their fair value
at the date of revaluation less subsequent accumulated depreciation
and impairment losses. Fair value is determined on the basis of regular
independent valuations prepared by external valuation experts, based on
50
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
discounted cash flows or capitalisation of net income (as appropriate). The
fair values are recognised in the financial statements and are reviewed at
the end of each reporting period to ensure that the carrying value of land
and buildings are not materially different from their fair values.
M. Financial assets & liabilities
M(1) Financial Assets
M(1)(i) IAS 39 Accounting Policy
Any revaluation increase arising on the revaluation of land and buildings
is credited to the asset revaluation reserve, except to the extent that it
reverses a revaluation decrease for the same asset previously recognised
as an expense in profit 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
revaluation 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 revaluation reserve relating to a previous revaluation
of that asset. Buildings under constructions are referred to as work in
progress and are accounted for at cost and subsequently reclassified to
buildings (premises) upon completion.
Depreciation is provided on property, plant and equipment, including
buildings but excluding land. Depreciation 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 estimated residual value. Leasehold
improvements are depreciated over the period of the lease or estimated
useful life, whichever is the shorter, using the straight line method. The
estimated useful life, residual value and depreciation method is reviewed
at the end of each annual reporting period.
The following basis and method of depreciation is used:
Class of asset
Method
Rate
Property (excluding
land)
Plant and equipment
Equipment under
operating lease
Straight line basis
2 - 3% pa
Straight line basis
10 - 25% pa
Straight line basis
6- 20% pa
Gains or losses on disposals (being the difference between the carrying
value at the time of sale or disposal and the proceeds received) are taken
into account in determining operating profit for the year. Where the
carrying value of an asset is greater than its estimated recoverable amount,
it is written down immediately to its recoverable amount. Repairs and
maintenance are taken into account in determining operating profit when
the expenditure is incurred.
K. Leases
Bank is lessee
All leases entered into by the Group are operating leases. Total payments
made are charged to the Statement of Comprehensive Income using the
straight line method.
Bank is lessor
Finance leases are included in Loans, Advances and Other Receivables
from Customers and are accounted for under the finance method whereby
income is recognised using the effective interest method. Assets subject
to operating leases are separately disclosed in the Statements of Financial
Position, according to the nature of the asset. These assets are stated at
cost or revalued amount less accumulated depreciation. The assets are
depreciated on a straight line basis over the life of the operating 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 flow statement, Cash and cash equivalents
comprise notes and coins, and balances due to and from other banks with
original maturities of less than three months.
Classification
Prior to 1 January 2018, the Group classified its financial assets in the
following categories: at fair value through profit or loss, loans and
receivables, and available for sale. The classification depends on the
purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets
held for trading. A financial asset is classified in this category if acquired
principally for the purpose of selling in the short term. Derivatives are
also categorised as held for trading unless they are designated as hedges.
Assets in this category are classified as current assets if expected to be
settled within 12 months, otherwise they are classified as non-current. The
Group’s financial assets at fair value through profit or loss comprise certain
equity securities included under other financial assets in the Statement of
Financial Position.
b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are
included in current assets, except for maturities greater than 12 months
after the end of the reporting period. These are classified as non-current
assets. The Group’s loans and receivables comprise ‘trade and other
receivables’ and ‘cash and cash equivalents’ in the Statement of Financial
Position.
c) Held to maturity investments
Held to maturity investments includes non-derivative financial assets with
fixed or determinable payments and fixed maturities that the Group has
both the intention and ability to hold to maturity. Management determines
the classification of investment securities held to maturity at their initial
recognition and reassesses the appropriateness of that classification at
the end of each reporting period. Investment securities held to maturity
are carried at amortised cost. The Group’s held to maturity investments
comprise securities issued by Governments and Central Banks of respective
countries (Treasury and Central Bank Bills) and certain debt securities
included under other financial assets in the Statement of Financial Position.
Recognition and measurement
Regular purchases and sales of financial assets are recognised on the trade-
date – the date on which the Group commits to purchase or sell the asset.
Investments are initially recognised at fair value plus transaction costs for
all financial assets not carried at fair value through profit or loss. Financial
assets carried at fair value through profit or loss are initially recognised
at fair value, and transaction costs are expensed in the Statement of
Comprehensive Income. Financial assets are derecognised when the
rights to receive cash flows from the investments have expired or have
been transferred and the Group has transferred substantially all risks and
rewards of ownership. Available-for-sale financial assets and financial
assets at fair value through profit or loss are subsequently carried at fair
value. Loans and receivables are subsequently carried at amortised cost
using the effective interest method.
Gains or losses arising from changes in the fair value of the ‘financial assets
at fair value through profit or loss’ category are presented in the income
statement within ‘Other banking income’ in the period in which they arise.
Dividend income from financial assets at fair value through profit or loss
is recognised in the income statement as part of other income when the
Group’s right to receive payments is established.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in
the balance sheet when there is a legally enforceable right to offset the
recognised amounts and there is an intention to settle on a net basis
or realise the asset and settle the liability simultaneously. The legally
51
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
enforceable right must not be contingent 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.
M(1)(ii) IFRS 9 Accounting Policy
Classification and subsequent measurement
From 1 January 2018, the Group has applied IFRS 9 and classifies its
financial assets in the following measurement categories:
•
•
Fair value through profit or loss (FVPL); or
Amortised cost.
The classification requirements for debt and equity instruments are
described below:
a) Debt instruments
Debt instruments are those instruments that meet the definition of a
financial liability from the issuer’s perspective, such as loans, government
and corporate bonds and trade receivables purchased from clients in
factoring arrangements without recourse
Classification and subsequent measurement of debt instruments depend
on:
(i)
(ii)
the Group’s business model for managing the asset; and
the cash flow characteristics of the asset.
Based on these factors, the Group classifies its debt instruments into one
of the following measurement categories:
•
Amortised cost: Assets that are held for collection of contractual
cash flows where those cash flows represent solely payments of
principal and interest (‘SPPI’), and that are not designated at FVPL,
are measured at amortised cost. The carrying amount of these assets
is adjusted by any expected credit loss allowance recognised and
measured as described in note 3.1.2. Interest income from these
financial assets is included in ‘Interest and similar income’ using the
effective interest rate method.
•
Fair value through profit or loss: Assets that do not meet the criteria
for amortised cost are measured at fair value through profit or loss.
A gain or loss on a debt investment that is subsequently measured
at fair value through profit or loss and is not part of a hedging
relationship is recognised in profit or loss and presented in the profit
or loss statement within ‘Net trading income’ in the period in which
it arises, unless it arises from debt instruments that were designated
at fair value or which are not held for trading, in which case they are
presented separately in ‘Net investment income’. Interest income
from these financial assets is included in ‘Interest income’ using the
effective interest rate method.
Business model: the business model reflects how the Group manages
the assets in order to generate cash flows. That is, whether the Group’s
objective is solely to collect the contractual cash flows from the assets or
is to collect both the contractual cash flows and cash flows arising from
the sale of assets. If neither of these is applicable (e.g. financial assets are
held for trading purposes), then the financial assets are classified as part of
‘other’ business model and measured at FVPL. Factors considered by the
Group in determining the business model for a group of assets include past
experience on how the cash flows for these assets were collected, how
the asset’s performance is evaluated and reported to key management
personnel, how risks are assessed and managed and how managers are
compensated. For example, the Group’s business model for the mortgage
loan book is to hold to collect contractual cash flows, for this portfolio
there has been no history of prior period sales and no intention of future
sales, hence the classification is amortised cost. Another example is debt
securities held within the insurance entities of the bank which are held
at FVPL to prevent an accounting mismatch with the associated insurance
contract liabilities which are held at fair value through income statement.
SPPI: Where the business model is to hold assets to collect contractual
cash flows or to collect contractual cash flows and sell, the Group assesses
whether the financial instruments’ cash flows represent solely payments
of principal and interest (the ‘SPPI test’). In making this assessment, the
Group considers whether the contractual cash flows are consistent with
a basic lending arrangement i.e. interest includes only consideration
for the time value of money, credit risk, other basic lending risks and a
profit margin that is consistent with a basic lending arrangement. Where
the contractual terms introduce exposure to risk or volatility that are
inconsistent with a basic lending arrangement, the related financial asset
is classified and measured at fair value through profit or loss.
The Group reclassifies debt investments when and only when its business
model for managing those assets changes. The reclassification takes place
from the start of the first reporting period following the change. Such
changes are expected to be very infrequent and none occurred during the
period.
b) Equity instruments
Equity instruments are instruments that meet the definition of equity
from the issuer’s perspective; that is, instruments that do not contain a
contractual obligation to pay and that evidence a residual interest in the
issuer’s net assets. Examples of equity instruments include basic ordinary
shares.
The Group subsequently measures all equity investments at fair value
through profit or loss. Gains and losses on equity investments at FVPL are
included in the ‘Investment revenue’ line in the statement of profit or loss.
Measurement methods
Amortised cost and effective interest rate
The amortised cost is the amount at which the financial asset or financial
liability is measured at initial recognition minus the principal repayments,
plus or minus the cumulative amortisation using the effective interest
method of any difference between that initial amount and the maturity
amount and, for financial assets, adjusted for any loss allowance.
The effective interest rate is the rate that exactly discounts estimated future
cash payments or receipts through the expected life of the financial asset
or financial liability to the gross carrying amount of a financial asset (i.e. its
amortised cost before any impairment allowance) or to the amortised cost
of a financial liability. The calculation does not consider expected credit
losses and includes transaction costs, premiums or discounts and fees and
points paid or received that are integral to the effective interest rate, such
as origination fees.
When the Group revises the estimates of future cash flows, the carrying
amount of the respective financial assets or financial liability is adjusted
to reflect the new estimate discounted using the original effective interest
rate. Any changes are recognised in profit or loss.
Interest income
Interest income is calculated by applying the effective interest rate to the
gross carrying amount of financial assets.
Initial recognition and measurement
Financial assets and financial liabilities are recognised when the entity
becomes a party to the contractual provisions of the instrument. Regular
way purchases and sales of financial assets are recognised on trade-date,
the date on which the Group commits to purchase or sell the asset.
At initial recognition, the Group measures a financial asset or financial
liability at its fair value plus or minus, in the case of a financial asset or
financial liability not at fair value through profit or loss, transaction costs
that are incremental and directly attributable to the acquisition or issue
of the financial asset or financial liability, such as fees and commissions.
Transaction costs of financial assets and financial liabilities carried at fair
52
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
value through profit or loss are expensed in profit or loss. Immediately after
initial recognition, an expected credit loss allowance (ECL) is recognised for
financial assets measured at amortised cost, as described in note 3.1.2,
which results in an accounting loss being recognised in profit or loss when
an asset is newly originated.
When the fair value of financial assets and liabilities differs from the
transaction price on initial recognition, the entity recognises the difference
as follows:
)a When the fair value is evidenced by a quoted price in an active market
for an identical asset or liability (i.e. a Level 1 input) or based on a
valuation technique that uses only data from observable markets, the
difference is recognised as a gain or loss.
In all other cases, the difference is deferred and the timing of recognition
of deferred day one profit or loss is determined individually. It is either
amortised over the life of the instrument, deferred until the instrument’s
fair value can be determined using market observable inputs, or realised
through settlement.
Modification of loans
The Group sometimes renegotiates or otherwise modifies the contractual
cash flows of loans to customers. When this happens, the Group assesses
whether or not the new terms are substantially different to the original
terms. The Group does this by considering, among others, the following
factors:
•
If the borrower is in financial difficulty, whether the modification
merely reduces the contractual cash flows to amounts the borrower
is expected to be able to pay.
• Whether any substantial new terms are introduced, such as a profit
share/equity-based return that substantially affects the risk profile of
the loan.
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
the risks and rewards of ownership, or (ii) the Group neither transfers nor
retains substantially all the risks and rewards of ownership and the Group
has not retained control.
The Group enters into transactions where it retains the contractual rights
to receive cash flows from assets but assumes a contractual obligation to
pay those cash flows to other entities and transfers substantially all of the
risks and rewards. These transactions are accounted for as ‘pass through’
transfers that result in derecognition if the Group:
(i)
amounts from the assets;
(ii)
(iii)
without material delay.
Is prohibited from selling or pledging the assets; and
Has an obligation to remit any cash it collects from the assets
Has no obligation to make payments unless it collects equivalent
Collateral (shares and bonds) furnished by the Group under standard
repurchase agreements and securities lending and borrowing transactions
are not derecognised because the Group retains substantially all the risks
and rewards on the basis of the predetermined repurchase price, and the
criteria for derecognition are therefore not met. This also applies to certain
securitisation transactions in which the Group retains a subordinated
residual interest.
M(2) Financial Liabilities
Classification and subsequent measurement
In both the current and prior period, financial liabilities are classified as
subsequently measured at amortised cost, except for:
•
Financial liabilities arising from the transfer of financial assets which
did not qualify for de-recognition, whereby a financial liability
is recognised for the consideration received for the transfer. In
subsequent periods, the Group recognises any expense incurred on
the financial liability; and
Significant extension of the loan term when the borrower is not in
financial difficulty.
•
Financial guarantee contracts and loan commitments.
•
•
•
•
Significant change in the interest rate.
Change in the currency the loan is denominated in.
Insertion of collateral, other security or credit enhancements that
significantly affect the credit risk associated with the loan.
If the terms are substantially different, the Group derecognises the original
financial asset and recognises a ‘new’ asset at fair value and recalculates
a new effective interest rate for the asset. The date of renegotiation is
consequently considered to be the date of initial recognition for impairment
calculation purposes, including for the purpose of determining whether a
significant increase in credit risk has occurred. However, the Group also
assesses whether the new financial asset recognised is deemed to be
credit-impaired at initial recognition, especially in circumstances where the
renegotiation was driven by the debtor being unable to make the originally
agreed payments. Differences in the carrying amount are also recognised
in profit or loss as a gain or loss on de-recognition.
If the terms are not substantially different, the renegotiation or modification
does not result in de-recognition, and the Group recalculates the gross
carrying amount based on the revised cash flows of the financial asset
and recognises a modification gain or loss in profit or loss. The new gross
carrying amount is recalculated by discounting the modified cash flows at
the original effective interest rate (or credit-adjusted effective interest rate
for purchased or originated credit-impaired financial assets).
De-recognition other than on a modification
Financial assets, or a portion thereof, are derecognised when the contractual
rights to receive the cash flows from the assets have expired, or when they
have been transferred and either (i) the Group transfers substantially all
De-recognition
Financial liabilities are derecognised when they are extinguished (i.e. when
the obligation specified in the contract is discharged, cancelled or expires).
The exchange between the Group and its original lenders of debt
instruments with substantially different terms, as well as substantial
modifications of the terms of existing financial liabilities, are accounted for
as an extinguishment of the original financial liability and the recognition
of a new financial liability. The terms are substantially different if the
discounted present value of the cash flows under the new terms, including
any fees paid net of any fees received and discounted using the original
effective interest rate, is at least 10% different from the discounted present
value of the remaining cash flows of the original financial liability. In
addition, other qualitative factors, such as the currency that the instrument
is denominated in, changes in the type of interest rate, new conversion
features attached to the instrument and change in covenants are also taken
into consideration. If an exchange of debt instruments or modification of
terms is accounted for as an extinguishment, any costs or fees incurred
are recognised as part of the gain or loss on the extinguishment. If the
exchange or modification is not accounted for as an extinguishment, any
costs or fees incurred adjust the carrying amount of the liability and are
amortised over the remaining term of the modified liability.
Financial guarantee contracts and loan commitments
Financial guarantee contracts are contracts that require the issuer to make
specified payments to reimburse the holder for a loss it incurs because a
specified debtor fails to make payments when due, in accordance with the
terms of a debt instrument. Such financial guarantees are given to banks,
financial institutions and others on behalf of customers to secure loans,
overdrafts and other banking facilities.
Financial guarantee contracts are initially measured at fair value and
subsequently measured at the higher of:
53
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
•
•
The amount of the loss allowance (calculated as described in note
33.1.2); and
The premium received on initial recognition less income recognised in
accordance with the principles of IFRS 15.
Loan commitments provided by the Group are measured as the amount of
the loss allowance (calculated as described in note 33.1.2). The Group has
not provided any commitment to provide loans at a below-market interest
rate, or that can be settled net in cash or by delivering or issuing another
financial instrument.
For loan commitments and financial guarantee contracts, the loss
allowance is recognised as a provision.
N. Provisions
Provisions are recognised when the Group has a present obligation (legal
or constructive) as a result of a past event, it is probable that the Group will
be required to settle the obligation, and a reliable estimate can be made
of the amount of the obligation. The amount recognised as a provision
is the best estimate of the consideration required to settle the present
obligation at reporting date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the cash
flows estimated to settle the present obligation, its carrying amount is the
present value of those cash flows.
When some or all of the economic benefits required to settle 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.
O. Employee benefits
A liability is recognised for benefits accruing to employees in respect of
wages and salaries, annual leave, and long service leave when it is probable
that settlement will be recognised and they are capable of being measured
reliably.
Liabilities recognised in respect of employee benefits are measured at
their nominal values using the remuneration rate expected to apply at the
time of settlement.
Post-employment benefits - defined contribution plans
A defined contribution plan is a pension plan under which the Group pays
fixed contributions into a separate fund, and there is no recourse to the
Group for employees if the fund has insufficient assets to pay employee
benefits relating to service up to the balance sheet date.
The Group pays contributions to publicly or privately administered
superannuation 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-citizen contract staff for whom there is no legal obligation
to do so. The contributions are at the current rate of employees’ gross
salary. Once the contributions have been paid, the Group has no further
payment obligations for post-employment benefits from the date an
employee ceases employment with 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 profit or tax loss for the
period. It is calculated using tax rates and tax laws that have been enacted
or substantively enacted by the reporting date. Current tax for current and
prior periods is recognised as a liability (or asset) to the extent that it is
unpaid (or refundable).
54
Deferred tax
Deferred tax is accounted for using the balance sheet liability method.
Temporary differences are differences between the tax base of an asset
or liability and its carrying amount in the Statement of Financial Position.
The tax base of an asset or liability is the amount attributed to that asset
or liability for tax purposes.
In principle, deferred tax liabilities are recognised for all taxable temporary
differences. Deferred tax assets are recognised to the extent that it is
probable that sufficient taxable amounts will be available against which
deductible temporary differences or unused tax losses and tax offsets can
be utilised. However, deferred tax assets and liabilities are not recognised
if the temporary differences giving rise to them arise from the initial
recognition of assets and liabilities which affects neither taxable income
nor accounting profit.
Deferred tax assets and liabilities 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 settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the reporting date.
The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Group
expects, at the reporting date, to recover or settle the carrying amount of
its assets and liabilities.
Deferred tax assets and liabilities are offset when they relate to income
taxes levied by the same taxation authority and the Group intends to settle
its current tax assets and liabilities on a net basis.
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 Financial Statements of the Group are presented in the currency of the
primary economic environment in which the entity operates (its functional
currency). For the purpose of these Financial Statements, the results and
financial position of the Bank are expressed in Papua New Guinea kina,
which is the Bank’s functional and presentation currency.
In preparing the Financial Statements, transactions in currencies other
than the entity’s functional currency (foreign currencies) are recorded at
the rates of exchange prevailing on the dates of the transactions. 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 operations
On consolidation, the assets and liabilities of the consolidated entity’s
overseas operations are translated at exchange rates prevailing at the
reporting date. Income and expense items are translated at the average
exchange rates for the period unless exchange rates fluctuate significantly.
Exchange differences arising, if any, are recognised in the foreign currency
translation reserve, and recognised in profit or loss on disposal of the
foreign operation.
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
R. Share capital
Share issue costs
External costs directly attributable to the issue of new shares are deducted
from equity net of any related income taxes.
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 after the balance sheet date, are dealt with
in the subsequent events note.
S. Asset impairment
At each reporting date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the asset does
not generate cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash-generating unit to which the
asset belongs.
Goodwill, intangible assets with indefinite useful lives and intangible assets
not yet available for use are tested for impairment annually and whenever
there is an indication 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 estimated future cash flows
are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have
not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (cash-
generating unit) is reduced to its recoverable amount. An impairment
loss is recognised in profit or loss immediately, unless the relevant asset
is carried at fair value, in which case the impairment loss is treated as a
revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount
of the asset (cash-generating unit) is increased to the revised estimate
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-generating unit) in prior years. A reversal of an impairment loss is
recognised in profit 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 revaluation increase.
T. Non-current assets held for sale
Non-current assets (and disposal groups) classified as held for sale are
measured, with certain exceptions, at the lower of carrying amount and
fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their
carrying amount will be recovered principally through a sale transaction
rather than through continuing use. This condition is regarded as met only
when the asset (or disposal group) is available for immediate sale in its
present condition 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
classification, except in the circumstances where sale is delayed by events
or circumstances outside the Group’s control and the Group remains
committed to a sale.
U. Investment property
Property held for long-term rental yields is classified as investment
property. Investment property comprises freehold land and buildings. It
is carried at fair value. The fair value have been arrived at on the basis
of the valuation carried out by Rolle and Associates and Pacific Valuations
Limited, independent valuers not related to the Group. The valuers have
appropriate qualifications and recent experience in the valuation of
properties in Fiji. The valuations were arrived at by reference to current
net rental income and capital expenditure and external factors in the
Fiji commercial and residential environment such as current supply and
demand and expected growth.
Changes in fair values are recorded in profit or loss.
Property located on land that is held under an operating lease is classified
as investment property as long as it is held for long-term rental yields and is
not occupied by more than 50% by the companies in the Group. The initial
cost of the property is the lower of the fair value of the property and the
present value of the minimum lease payments. The property is carried at
fair value after initial recognition.
V. Derivative financial instruments and acceptances
Forward foreign exchange contracts entered into for trading purposes are
initially recognised at fair value 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 Group to pay bills of exchange
drawn on customers. The Group expects most acceptances to be settled
simultaneously with the reimbursement from the customers. Customer
acceptances are accounted for as off-balance sheet transactions and are
disclosed as contingent liabilities and commitments.
The Group does not actively enter into or trade in complex forms of
derivative financial instruments such as currency and interest rate swaps
and options.
W. Segment reporting
Segments are reported in a manner consistent with the internal reporting
provided to the Group’s chief operating decision maker.
X. Earnings per share
Earnings per share is determined by dividing the profit or loss attributable
to owners of the Bank by the weighted average number of participating
shares outstanding during the reporting year.
55
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
Y. Comparatives
Comparative figures have been adjusted to conform to changes in
presentation in the current year.
Z. Critical accounting estimates and judgments
The application of the Group’s accounting policies requires the use of
estimates and assumptions. If different assumptions or estimates were
applied, the resulting values would change, impacting the net assets and
income of the Group.
This note provides an overview of the areas that involve a higher degree
of judgement or complexity, and major sources of estimation uncertainty
that have a significant risk of resulting in a material adjustment within the
next financial year. Detailed information about each of these estimates
and judgements is included in the related notes together with information
about the basis of calculation for each affected line item in the financial
statements.
The areas involving significant estimates of judgments are:
• Estimated impairment of financial and non-financial assets – note 1(g)
and 1(s)
• Estimated goodwill impairment – note 1(h) and 7(a)
• Estimated insurance liability – note 1(d), note 21 and note 39
• Estimation of fair value of financial assets and liabilities – note 1(m)
and note 38
• Estimation of fair value of non-financial assets - note 38
The Group adopted IFRS 9 as at 1 January 2018, measurement of credit
loss allowance for financial assets measured at amortised cost is an area
that requires the use of complex models and significant assumptions about
future economic conditions and credit behaviour (e.g. the likelihood of
customers defaulting and the resulting losses). Explanation of the inputs,
assumptions and estimation techniques used in measuring ECL is further
detailed in note 33.1.2.3, which also sets out key sensitivities of the ECL to
changes in these elements.
A number of significant judgements are also required in applying the
accounting requirements for measuring ECL, such as:
• Determining criteria for significant increase in credit risk;
• Choosing appropriate models and assumptions for the measurement
of ECL;
• Establishing the number and relative weightings of forward-looking
scenarios for each type of product/market and the associated ECL; and
• Establishing groups of similar financial assets for the purposes of
measuring ECL.
Detailed information about the judgements and estimates made by the
Group in the above areas are set out in note 33.
56
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 2. NET INTEREST INCOME
Net interest income
All amounts are expressed in K’000
Interest income
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
Consolidated Bank
2018
2017
2018
2017
Loans, advances and other receivables from customers1
1,156,426
1,027,861
1,053,335
Other financial assets - inscribed stock
Treasury bills
Cash and balances with Central Bank
Central Bank bills
Other
Less: Interest expense
Customer deposits
Other banks
Subordinated debt securities
205,333
194,816
4,042
-
1,074
204,685
195,093
2,802
83
2,116
205,051
193,322
5,664
-
3,112
944,201
204,378
194,093
3,417
83
2,962
1,561,691
1,432,640
1,460,484
1,349,134
152,008
20,330
8,557
180,895
134,381
12,276
8,307
154,964
135,167
22,366
8,557
166,090
120,177
12,622
8,307
141,106
1,380,796
1,277,676
1,294,394
1,208,028
1Interest income includes K16.895m recognized on impaired loans (Stage 3) to customers. The Group takes up required provisions on such interest
income as detailed in the accounting policy in note D.
3. FEE AND COMMISSION INCOME
Fee and commission income
Product related
Trade and international related
Electronic banking related
Other
Less: Fee and commission expenses
Agencies
International Finance Corporation fees
4. OTHER INCOME
Foreign exchange related
Operating lease rentals
Other
198,017
18,900
129,829
37,098
383,844
687
649
1,336
382,508
313,785
8,473
41,230
363,488
206,882
18,542
114,181
35,142
374,747
627
447
1,074
373,673
275,576
9,430
22,165
307,171
185,188
18,073
118,927
27,004
349,192
651
649
1,300
347,892
281,205
8,473
63,850
353,528
Foreign exchange related income includes gains and losses from spot and forward contracts and translated foreign currency assets.
195,720
17,800
106,657
26,771
346,948
582
447
1,029
345,919
249,538
9,430
51,091
310,059
57
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
5. OPERATING EXPENSES
All amounts are expressed in K’000
Administration
Computing
Depreciation
Amortisation of computer development
Non-executive Directors costs
Non-lending losses1
Fixed asset impairment expenses
Premises and equipment
Staff costs
Defined contribution plans
Statutory benefit contributions
Wages and salaries
Other staff benefits
Consolidated
Bank
2018
118,394
136,973
81,000
27,399
5,044
33,226
13,888
88,924
2017
136,209
121,922
72,331
27,427
2,379
20,156
6,682
92,978
2018
114,937
119,599
64,572
22,546
4,559
33,094
13,888
80,795
2017
121,797
104,682
61,701
26,359
1,961
26,780
6,682
85,089
504,848
480,084
453,990
435,051
15,262
12,168
296,885
57,994
382,309
887,157
13,943
9,389
288,116
60,616
372,064
852,148
14,021
11,216
272,331
55,315
352,883
806,873
12,890
8,485
264,233
57,232
342,840
777,891
313,512
(17,396)
296,116
(2,814)
293,302
304,277
-
1,494
-
(9,655)
(2,814)
293,302
3,670
(313,512)
1,966
282,645
(25,231)
1Non-Lending losses for 2018 include K13.5m loss on aircraft destroyed by fire, offset by insurance recovery.
6. INCOME TAX
Income tax expense
Current tax
Deferred tax
Current year
Adjustment to prior year estimates
Tax calculated at 30% of profit before tax (2017:30%)
Tax calculated at respective subsidiary tax rates
Expenses not deductible for tax
Tax loss not recognised
Income not recognised for tax purposes1
Adjustment to prior year estimates
Provision for Income Tax
At 1 January
Income tax provision
Adjustment to prior year estimates
Tax payments made
At 31 December
365,551
(12,443)
353,108
(1,012)
352,096
341,712
14,798
4,453
5,379
(13,234)
(1,012)
352,096
(31,708)
(365,551)
(10,418)
420,430
12,753
326,675
(11,845)
314,830
(3,309)
311,521
294,622
16,770
4,069
4,681
(5,312)
(3,309)
311,521
576
(326,675)
694
293,697
(31,708)
347,673
(20,623)
327,050
2,043
329,093
334,961
-
5
-
(7,916)
2,043
329,093
(25,231)
(347,256)
(12,706)
402,213
17,020
1Income not recognized for tax purpose for the Bank includes dividends received from Subsidiaries which are eliminated upon consolidation whilst the Group
number represents actuarial liabilities deductions allowable for BSP Life Fiji Limited.
58
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
6. INCOME TAX (continued)
All amounts are expressed in K’000
2018
2017
2018
2017
Consolidated
Bank
Deferred taxes
Specific allowance for losses on loans, advances and other receivables
from customers
General allowance for losses on loans, advances and other receivables
from customers
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
Revaluation recognised in equity
Adjustment to prior year estimates
At 31 December
48,186
33,694
45,011
30,109
132,757
23,983
(1,361)
46,690
(70,128)
659
27,658
208,444
279,275
(70,831)
132,752
23,390
(1,228)
32,294
(60,565)
(897)
22,494
181,934
244,625
(62,691)
208,444
181,934
181,934
12,443
4,244
9,823
170,089
27,798
(10,165)
(5,788)
127,518
23,103
(1,337)
45,017
(30,338)
659
24,758
234,391
265,407
(31,016)
234,391
200,021
20,623
4,380
9,367
131,576
22,809
(1,228)
31,604
(34,969)
(897)
21,017
200,021
237,115
(37,094)
200,021
182,625
32,161
(8,977)
(5,788)
208,444
181,934
234,391
200,021
59
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
7. INTANGIBLE ASSETS
All amounts are expressed in K’000
2018
2017
2018
2017
Consolidated
Bank
7(a) Goodwill
At 1 January
Net movement
Gross carrying amount
45,307
-
45,307
45,307
-
45,307
41,051
-
41,051
41,051
-
41,051
Goodwill was tested for impairment as at 31 December 2018 and no impairment has been recognised in the Statement of Comprehensive Income.
7(b) Computer development costs
At 1 January
Additions
Disposals
Amortisation expense
At 31 December
Total intangible assets
Computer development cost
Accumulated amortisation
At 31 December
8. INVESTMENTS IN SUBSIDIARIES
All amounts are expressed in K’000
62,511
95,326
(1,122)
(27,399)
129,316
174,623
245,186
(115,870)
129,316
46,319
50,096
(5,727)
(28,177)
62,511
107,818
217,384
(154,873)
62,511
59,699
75,469
(1,122)
(22,546)
111,500
152,551
212,614
(101,114)
111,500
43,676
48,109
(5,727)
(26,359)
59,699
100,750
204,672
(144,973)
59,699
Principal
activity
Place of Incorporation
and Operation
Ownership
%
Balance of Investment
Name of Subsidiary
BSP Capital Limited
BSP Life (Fiji) Limited
BSP Life PNG Limited
BSP Convertible Notes Limited
BSP Finance Limited
Bank of South Pacific Tonga Limited
Bank South Pacific Samoa Limited
Bank South Pacific (Vanuatu) Limited
At 31 December
Share brokerage/Fund
Management/Investment banking
Life Insurance
Life Insurance
Capital Raising
Credit Institution
Bank
Bank
Bank
PNG
Fiji
PNG
Fiji
PNG
Tonga
Samoa
Vanuatu
100%
100%
100%
100%
100%
100%
98.7%
100%
Represented by:
All amounts are expressed in K’000
At 1 January
Additional capital
Provision for Impairment of BSP Capital Limited
At 31 December
2018
2017
2,448
87,599
15,000
371
61,837
71,610
70,712
38,020
2,251
87,599
6,000
371
61,837
71,610
70,712
38,020
347,597
338,400
2018
2017
338,400
318,261
10,000
(803)
26,888
(6,749)
347,597
338,400
Provision for Impairment of the Investment in BSP Capital Limited
During the year 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 recoverable value. As of the reporting date, the investment amount is written down to its net book value.
60
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
9. INVESTMENT IN JOINT VENTURES
Entity
Joint
Venture
Principal activity
Place of
incorporation
and operation
Suva Central Ltd
Richmond Ltd
Joint Venture
Property rental
Joint Venture
Hotel operation
Fiji
Fiji
Proportion of ownership and voting power held
2018
50%*
2017
50%*
61.3%**,50%***
61.3%**,50%***
BSP Finance Cambodia Plc
Joint Venture
Finance
Cambodia
50%*
50%*
The investments above are accounted for using the equity method in the Financial Statements.
*Both ownership and voting power held, **ownership, ***voting power held.
All amounts are expressed in K’000
2018
2017
2018
2017
Consolidated
Bank
Joint ventures
Investment in joint ventures
Investments during the year
Translation movement
Share of profit for the year
Net investment at 31 December
Summarised financial information of joint ventures:
Total assets
Total liabilities
Net assets
Share of profits
Group fair value alignment
Share of profit in Group
154,135
112,762
19,157
16,513
-
137
21,307
175,579
340,266
(159,450)
180,816
14,354
6,953
21,307
11,370
6,715
23,288
154,135
275,782
(117,841)
157,941
12,470
10,818
23,288
-
(40)
921
20,038
81,740
(43,426)
38,314
921
-
921
-
969
1,675
19,157
81,740
(43,426)
38,314
1,675
-
1,675
61
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
10. CASH AND BALANCES WITH CENTRAL BANK
All amounts are expressed in K’000
Notes, coins and cash at bank
Balances with Central Bank other than statutory deposit
2018
509,588
743,861
2017
475,020
730,176
Total cash and balances with Central Bank
1,253,449
1,205,196
2018
500,332
466,375
966,707
2017
461,827
523,976
985,803
Consolidated
Bank
11. TREASURY AND CENTRAL BANK BILLS
Treasury and Central Bank bills – face value
2,553,051
3,370,252
2,538,706
3,358,788
Discount for interest receivable
IFRS 9 transition provisioning
At 31 December
(48,772)
(9,579)
(71,626)
-
(48,771)
(9,579)
(71,626)
-
2,494,700
3,298,626
2,480,356
3,287,162
Treasury and Central Bank bills are debt securities issued by Central Banks. These bills are classified as assets held for trading and carried at fair value
by the Insurance business and as assets held to maturity and carried at amortised cost by the Banking businesses.
12. AMOUNTS DUE FROM OTHER BANKS
Items in the course of collection
Placements with other banks
At 31 December
35,426
818,593
854,019
29,156
920,058
949,214
35,426
760,754
796,180
29,154
858,183
887,337
The Group undertakes thorough compliance and due diligence reviews before entering into any correspondent banking relationships. There is also a
cash and cash equivalent of K31.451 million held with counter-party Banks that are not available for use by the Group.
13. LOANS, ADVANCES AND OTHER RECEIVABLES FROM CUSTOMERS
Overdrafts
Lease financing
Term loans
Mortgages
Policy loans
912,057
830,851
848,196
776,190
252,293
9,510,991
172,334
8,675,849
205,744
8,767,253
135,700
8,016,448
2,403,278
2,054,173
2,000,770
1,705,081
85,597
53,472
-
-
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
At 31 December
13,164,216
11,786,679
11,821,963
10,633,419
(633,567)
(577,186)
(589,238)
(538,949)
12,530,649
11,209,493
11,232,725
10,094,470
The spread of the loans are detailed in the maturity analysis table on Note 34. The loans are well-diversified across various sectors and are further
analysed on Note 33. Allowance for losses includes K16.895m provision taken up for interest recognized on stage 3 loans.
62
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
13. LOANS, ADVANCES AND OTHER RECEIVABLES FROM CUSTOMERS (continued)
Lease financing
The Group and the bank provide lease financing to a broad range of clients to support financing 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:
All amounts are expressed in K’000
2018
2017
2018
2017
Consolidated
Bank
Gross investment in finance lease receivable
Not later than 1 year
Later than 1 year and not later than 5 years
Unearned future finance income
Not later than 1 year
Later than 1 year and not later than 5 years
Present value of minimum lease payments receivable
Present value of minimum lease payments 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 increased provisioning
Loans written off against provisions / (Write back of provisions
no longer required)
34,358
252,531
286,889
(1,961)
(32,635)
(34,596)
252,293
32,397
219,896
252,293
50,224
142,734
192,958
(6,212)
(14,412)
(20,624)
172,334
44,012
128,322
172,334
29,746
200,775
230,521
(1,713)
(23,064)
(24,777)
205,744
28,033
177,711
205,744
30,372
118,539
148,911
(2,595)
(10,616)
(13,211)
135,700
27,777
107,923
135,700
577,186
66,073
(9,692)
523,661
63,181
(9,656)
538,949
57,277
(6,988)
488,241
52,853
(2,145)
At 31 December
633,567
577,186
589,238
538,949
Provision for impairment is represented by:
Collective provision
Individually assessed or specific provision
At 31 December
Loan impairment expense
Net collective provision funding
Net new and increased individually assessed provisioning
Total new and increased provisioning
Recoveries during the year
Net write back/(write off)
At 31 December
454,345
179,222
633,567
15,034
51,039
66,073
461,389
115,797
577,186
40,926
22,255
63,181
423,965
165,273
589,238
11,526
45,751
57,277
438,585
100,364
538,949
38,386
14,467
52,853
(58,936)
(64,563)
(57,508)
(63,067)
75,243
82,380
79,060
77,678
71,830
71,599
75,325
65,111
63
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
14. PROPERTY, PLANT AND EQUIPMENT
All amounts are expressed in K’000
2018
2017
2018
2017
Consolidated
Bank
39,295
646,574
(108,905)
537,669
366,593
(250,280)
116,313
693,277
70,711
118,851
(150,267)
39,295
560,019
20,492
(12,049)
(488)
(30,305)
537,669
107,940
55,789
(1,465)
(45,951)
116,313
70,711
650,409
(90,390)
560,019
355,667
(247,727)
107,940
738,670
157,713
85,536
(172,538)
70,711
402,466
192,702
(1,683)
(5,418)
(28,048)
560,019
123,319
24,099
(1,485)
(37,993)
107,940
32,540
523,923
(96,809)
427,114
266,170
(187,643)
78,527
51,065
532,564
(81,283)
451,281
265,504
(193,545)
71,959
538,181
574,305
51,065
108,347
(126,872)
32,540
451,281
14,355
(12,049)
-
(26,473)
427,114
71,959
41,258
(1,335)
(33,355)
78,527
144,975
64,049
(157,959)
51,065
362,840
139,884
(1,527)
(23,338)
(26,578)
451,281
61,353
40,401
(962)
(28,833)
71,959
Carrying value
Capital Work in Progress
Premises
Accumulated depreciation
Equipment
Accumulated depreciation
At 31 December
Reconciliation is as follows:
Capital work in progress
At 1 January
Additions
Transfers
At 31 December
Premises
At 1 January
Additions
Disposals
Revaluation gains/ (losses)
Depreciation expense
At 31 December
Equipment
At 1 January
Additions
Disposals
Depreciation expense
At 31 December
64
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 14. PROPERTY, PLANT AND EQUIPMENT (continued)
All amounts are expressed in K’000
Assets subject to operating lease
Carrying value
Aircraft
Accumulated depreciation
At 31 December
Reconciliation of carrying value of aircraft is set out below:
Aircraft
At 1 January
Depreciation
Disposal of aircraft
Revaluation 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
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
Consolidated
Bank
2018
2017
2018
2017
59,600
(7,167)
52,433
70,689
(4,743)
(13,513)
-
52,433
8,253
11,004
19,257
74,267
(3,578)
70,689
44,668
(6,290)
-
32,311
70,689
3,334
-
3,334
59,600
(7,167)
52,433
70,689
(4,743)
(13,513)
-
52,433
8,253
11,004
19,257
20,312
146,989
11,165
178,466
74,267
(3,578)
70,689
44,668
(6,290)
-
32,311
70,689
3,334
-
3,334
18,363
178,447
14,962
211,772
The carrying amount of land and buildings and aircraft had they been recognised under the cost model are as follows:
Land
Buildings
Aircraft
At 31 December
20,865
155,727
11,165
187,757
18,951
187,607
14,962
221,520
Land and buildings carried at fair value
Independent valuations of the Bank’s land and buildings were performed by The Professional Valuers of PNG Limited to determine the fair value of the
land and buildings. The valuations, which conform to International Valuation Standards, were determined by reference to capitalization of the notional
income stream approach on the Market Value basis. The recent valuation was dated 30 November 2017.
Assets subject to operating lease – aircraft
An independent valuation of the Bank’s aircrafts was performed by Charles Taylor Aviation Asset Management to determine the current realistic fair value
for each of the aircraft. The valuation, which conforms to International Valuation Standards, takes into consideration the current global market variations
for the specific types of aircrafts. The effective date of the valuation was 31 May 2017.
65
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
15. INVESTMENT PROPERTIES
All amounts are expressed in K’000
Opening net book value
Additions
Translation movement
Gain on revaluation
At 31 December
16. OTHER FINANCIAL ASSETS
Inscribed stock – issued by Central Bank
IFRS 9 transition provisioning
Financial assets carried at fair value through profit and loss:
Equity securities
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
2018
134,020
13,930
(299)
6,014
153,665
2,373,104
(6,004)
188,343
2,555,443
48,466
99,785
-
14,954
12,263
25,656
4,358
Consolidated
Bank
2017
117,590
5,006
6,652
4,772
134,020
2018
2017
-
-
-
-
-
-
-
-
-
-
2,310,279
2,079,723
2,062,341
-
(5,850)
147,048
-
-
-
2,457,327
2,073,873
2,062,341
107,399
82,784
-
39,513
12,749
19,664
2,252
205,482
264,361
29,375
22,164
51,539
24,479
135,921
160,400
41,863
92,532
3,067
-
-
22,201
2,630
162,293
62,465
53,554
116,019
97,642
75,007
10,665
-
-
17,851
977
202,142
55,811
182,461
238,272
13,903,428
4,329,338
18,232,766
13,438,449
13,168,693
12,800,761
4,463,243
3,790,477
4,042,995
17,901,692
16,959,170
16,843,756
The majority of the amounts are due to be settled within twelve months of the balance sheet date as shown in the maturity analysis table on note 34.
The deposits are diversified across industries and region.
66
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
20. SUBORDINATED DEBT SECURITIES
At 31 December, there is K75.525 million of debt securities outstanding, expected to be settled in less than 6 months after the balance sheet date. The
notes were issued during 2009, with a maturity date in May 2019, and interest is payable semi-annually at 11% per annum. They are valued at amortised
cost. There have been no defaults of interest or other breaches with respect to these debt securities since issue.
21. OTHER LIABILITIES
All amounts are expressed in K’000 Note
Policy liabilities 39(b)
Items in transit and all other liabilities
Borrowings
Creditors and accruals
Premiums received in advance
Outstanding claims
Claims incurred but not reported (IBNR)
Consolidated
Bank
2018
818,198
431,950
144,300
202,789
5,895
18,429
2,431
2017
749,876
259,582
199,294
150,525
6,327
15,060
2,224
2018
-
447,460
144,300
175,221
-
-
-
2017
-
271,407
199,294
125,932
-
-
-
At 31 December
1,623,992
1,382,888
766,981
596,633
Reconciliation of changes in liabilities arising from financing activities
A loan amounting to K253.969 million (USD80 million) was obtained in 2016 with principal repayment to commence in 2017. During 2018, the Bank paid
K94.121 million and an additional loan of K33.557 million was received. Foreign currency loss of K5.571 million was recognised arising from translation,
offset by appreciation of the counter party loan.
22. OTHER PROVISIONS
Staff related
Provision for non-lending loss
Provisions – other
Staff related provisions:
At 1 January
Provisions charge
Payouts
At 31 December
89,674
65,217
39,212
194,103
88,071
74,525
(72,922)
89,674
88,071
64,310
36,932
76,543
65,215
36,041
75,233
64,260
33,761
189,313
177,799
173,254
76,684
62,476
(51,089)
88,071
75,233
69,787
(68,477)
76,543
65,206
58,438
(48,411)
75,233
67
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
23. ORDINARY SHARES
Number of shares in '000s, Book value in K'000
At 31 December 2016/1 January 2017
Share buyback
At 31 December 2017 / 1 January 2018
Share buyback
At 31 December 2018
Number of shares
Book value
467,325
(13)
467,312
(66)
467,246
373,101
(100)
373,001
(637)
372,364
In May 2014, the Directors introduced a share-buyback scheme of up to K15 million. The share-buyback commenced in July 2014 and was extended to
such time when the allocated K15 million buyback was utilised, or if the Board wishes, anytime before that. As at 31 December 2018, a total of K9.1m
has been bought back under this scheme.
All amounts are expressed in K’000
Earnings per ordinary share
Consolidated
Bank
2018
2017
2018
2017
Net Profit attributable to shareholders (K’000)
Weighted average number of ordinary shares in use (‘000)
Basic and diluted earnings per share (expressed in toea)
844,072
467,279
180.6
757,003
467,323
162.0
787,446
467,279
168.5
720,953
467,323
154.3
Basic earnings per ordinary share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares
in issue during the year. Bank of South Pacific Limited has no dilutive potential ordinary shares. Consequently, basic earnings per ordinary share equals
diluted earnings per share.
Dividends paid on ordinary shares
Interim ordinary dividend (2018: 36 toea; 2017:32 toea)
Final ordinary dividend (2017:91 toea; 2016:79 toea)
169,341
428,023
597,364
149,541
372,317
521,858
168,210
425,204
593,414
149,541
369,414
518,955
68
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
24. RETAINED EARNINGS AND OTHER RESERVES
All amounts are expressed in K’000
2018
2017
2018
2017
Consolidated
Bank
Retained earnings
At 1 January
IFRS 9 transition provisions
Tax impact on IFRS 9 transition provisions
Restated balance as at 1 January 2018
Net profit for the year
Dividends paid
Disposal of assets – Asset revaluation
Recognition of deferred tax
BSP Life policy reserve
Loss in minority interest
At 31 December
Other reserves comprise
Revaluation reserve
Capital reserve
Equity component of Fiji Class Shares
General reserve
Exchange reserve
Movement in reserves for the year:
Revaluation reserve
At 1 January
Asset revaluation increment
Transfer assets revaluation reserve to retained earnings
Deferred tax on disposal of properties
Deferred tax on asset revaluation – 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
1,904,462
(14,147)
4,244
1,894,559
844,072
(597,364)
18,116
-
(3,416)
906
1,670,595
-
-
1,670,595
757,003
(521,858)
407
3,739
(5,491)
67
1,777,627
(14,601)
4,380
1,767,406
787,446
(593,414)
18,116
-
(3,416)
-
1,576,974
-
-
1,576,974
720,953
(518,955)
407
3,739
(5,491)
-
2,156,873
1,904,462
1,976,138
1,777,627
149,837
635
21,578
40,912
126,358
339,320
161,373
1,632
(18,116)
4,948
-
149,837
635
635
37,496
3,416
40,912
161,373
635
21,578
37,496
125,306
346,388
134,892
38,064
(1,418)
426
(10,591)
161,373
635
635
32,005
5,491
37,496
137,716
150,389
635
-
40,912
73,121
635
-
37,496
71,854
252,384
260,374
150,389
8
(18,116)
5,435
-
137,716
635
635
37,496
3,416
40,912
130,470
30,314
(1,418)
426
(9,403)
150,389
635
635
32,005
5,491
37,496
69
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
24. RETAINED EARNINGS AND OTHER RESERVES (continued)
All amounts are expressed in K’000
2018
2017
2018
2017
Consolidated
Bank
Exchange reserve
At 1 January
Movement during the year
At 31 December
Equity component of convertible notes
125,306
1,052
126,358
76,980
48,326
125,306
71,854
1,267
73,121
46,265
25,589
71,854
On 20 April 2010, the Group issued 3,064,967 Fiji Dollars (FJD) denominated mandatory convertible notes through its wholly owned subsidiary BSP
Convertible 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 ratio 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 voting rights as a BSP Ordinary Share and effected through a special voting 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 option of BSP on the
occurrence of certain prescribed events.
25. CONTINGENT LIABILITIES AND COMMITMENTS
Off-balance sheet financial instruments
Letters of credit
Guarantees and indemnities issued
Commitments to extend credit
At 31 December
Legal Proceedings
135,219
473,748
1,626,879
2,235,846
116,608
307,711
1,686,164
2,110,483
133,560
433,978
1,497,722
2,065,260
114,920
303,703
1,546,206
1,964,829
A number of legal proceedings against the Group were outstanding as at 31 December 2018. Based on information available at 31 December 2018,
the Group estimates a contingent liability of K21.1 million (2017: K18.6 million) in respect of these proceedings.
Commitments for capital expenditure
Amounts with firm commitments not reflected in the accounts
21,017
32,714
19,702
26,665
Operating lease commitments - (premises)
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
At 31 December
38,848
56,210
22,312
32,434
70,974
20,418
36,341
52,491
20,226
29,333
67,333
19,591
117,370
123,826
109,058
116,257
70
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
26. FIDUCIARY ACTIVITIES
The Group especially through BSP Capital Limited conducts investment fund management, stock broking and other fiduciary activities as responsible
entity, trustee, custodian or manager for investment funds and trusts, including superannuation. These funds are not consolidated as the Group does
not have direct or indirect control. Where the funds incur liabilities in respect of these activities, and the primary obligation 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 sufficient to cover the liabilities and it is therefore not probable that the Group will be required to settle the liabilities, the investments in the assets
and liabilities of these activities are not included in the Financial Statements.
27. DIRECTORS AND EXECUTIVE REMUNERATION
Directors remuneration
Directors of the company received remuneration including benefits during 2018 as detailed below:
All amounts in Kina
Total remuneration
Name of Director
Sir K. Constantinou, OBE
Dr. I. Temu
R. Fleming, CSM
G. Aopi, CBE
G. Robb, OAM
F. Talao
E. B Gangloff
A. Mano
A. Sam
Dr. F Lua’iufi
S. Davis
R. Bradshaw
Shareholder Approved Cap
Meetings attended
/total held
Appointed/
(Resigned)
2018
Bank
2018
Subsidiaries
2018
Total
8/8
-
8/8
-
8/8
8/8
7/8
5/8
8/8
8/8
8/8
8/8
-
561,304
750,000
1,311,304
(25/08/17)
-
(13/09/17)
-
-
-
-
-
-
-
-
-
-
-
343,152
318,152
343,152
280,652
330,652
305,652
330,652
305,652
-
-
-
270,000
60,000
60,000
210,000
-
-
-
-
-
-
-
613,152
378,152
403,152
490,652
330,652
305,652
330,652
305,652
3,119,020
1,350,000
4,469,020
4,500,000
2017
Total
358,533
102,680
-
110,486
400,366
199,508
175,366
122,881
161,488
126,387
115,107
36,627
1,909,429
2,500,000
The 2018 remuneration includes backdated allowances from 2015 to 2017 paid to directors for BSP Subsidiary boards as follows: Constantinou - K390,000,
Robb - K150,000 and Mano K150,000. Non-payment in previous years was due to management oversight. Including these retrospective payments,
shareholder approved cap has not been exceeded in any year.
* Managing Director / Chief Executive Officer receives no fees for his services as Director during the year. Other members of BSP executive management
who serve as directors of subsidiaries of BSP Group receive no fees for their services as Director.
71
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
27. DIRECTORS AND EXECUTIVE REMUNERATION (continued)
Executive remuneration
The number of employees or former employees whose income from the Bank was equal to or greater than K100,000 during the year, are classified in
income bands of K10,000 as follows:
Remuneration
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
370 – 380
380 – 390
390 – 400
400 – 410
410 – 420
420 – 430
430 – 440
440 – 450
450 - 460
460 - 470
470 – 480
480 – 490
490 – 500
2018
No.
2017
No.
72
53
41
22
30
21
21
14
20
10
10
11
11
9
6
2
1
2
4
2
2
1
3
3
2
7
-
4
3
4
1
7
3
4
1
4
2
4
2
1
58
41
24
35
22
14
20
11
15
14
5
9
5
9
3
2
5
-
2
3
9
6
1
3
5
9
4
2
4
5
2
2
3
1
-
-
5
4
-
-
Remuneration
K’000
500 – 510
510 – 520
520 – 530
530 – 540
540 – 550
550 – 560
560 – 570
570 – 580
580 – 590
590 – 600
610 – 620
620 – 630
630 – 640
650 – 660
660 – 670
670 – 680
680 – 690
690 – 700
700 – 710
710 – 720
720 – 730
740 – 750
750 – 760
760 – 770
780 – 790
790 – 800
810 – 820
820 – 830
830 – 840
840 – 850
850 – 860
860 - 870
870 - 880
880 – 890
890 - 900
900 – 910
910 – 920
920 - 930
930– 940
950 - 960
2018
No.
2017
No.
Remuneration
2018
2017
K’000
No.
No.
2
-
-
1
1
-
2
2
2
3
2
2
1
-
1
1
-
1
-
-
2
-
-
-
2
1
1
1
-
1
-
2
-
-
1
1
2
1
-
1
-
2
2
-
1
1
-
-
-
-
-
1
-
1
4
2
1
-
1
1
2
1
2
2
1
1
-
2
1
-
2
-
3
1
-
-
-
2
1
-
960 - 970
970 – 980
1000 – 1010
1010 – 1020
1020 - 1030
1040 – 1050
1050 – 1060
1060 – 1070
1070 – 1080
1090 – 1100
1100 – 1110
1110 – 1120
1120 – 1130
1130 – 1140
1150 – 1160
1180 – 1190
1290 – 1300
1380 – 1390
1400 – 1410
1430 – 1440
1460 - 1470
1470 - 1480
1680 - 1690
1760 - 1770
1770 - 1780
1880 - 1890
2050 - 2060
2220 - 2230
2580 - 2590
4670 - 4680
5960 - 5970
1
1
1
2
2
1
1
3
1
1
-
1
1
1
1
1
1
-
1
1
-
2
1
1
1
1
-
-
1
-
1
1
-
1
1
-
-
1
1
-
-
2
-
1
1
-
1
1
1
1
-
1
-
1
-
-
-
1
1
-
1
-
Total
487
418
72
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
27. DIRECTORS AND EXECUTIVE REMUNERATION (continued)
The specified executives during the year were:
Robin Fleming, CSM
Rohan George
Robert Loggia
Christophe Michaud
Paul Thornton
Aho Baliki, OBE
Hari Rabura
Mike Hallinan
Nuni Kulu
Edward Ruha
Peter Beswick
Daniel Faunt
Specified executives’ remuneration in aggregate (K’000)
Year
2018
2017
Salary
14,321
14,163
Primary
bonus
3,266
3,802
Non -
monetary
592
426
Super
173
33
Post-employment
prescribed benefits
Long term
incentive
Other
benefits
-
1,955
3,636
-
529
401
Total
22,517
20,780
28. RECONCILIATION OF OPERATING CASH FLOW
All amounts are expressed in K’000
2018
2017
2018
2017
Consolidated
Bank
Reconciliation of operating profit after tax to operating cash
flow before changes in operating assets
Operating profit after tax
Add: Tax Expense
Operating profit before income tax
Major non-cash amounts
Depreciation
Amortisation of deferred acquisition and computer development
costs
Net loss on sale of fixed assets
Movement in forex income accrual
Impairment on loans and advances
Movement in payroll provisions
Impairment of subsidiary
Impairment of fixed assets
Net effect of other accruals
844,072
352,096
757,003
311,521
787,446
329,093
720,953
293,302
1,196,168
1,068,524
1,116,539
1,014,255
81,000
72,331
64,572
61,701
27,399
1,879
1,053
56,380
1,603
-
13,888
135,731
27,427
-
(436)
53,525
11,387
-
6,682
125,940
22,546
1,879
1,267
50,289
1,310
803
13,888
100,343
26,359
-
(436)
50,708
10,027
6,749
6,682
83,726
Operating cash flow before changes in operating assets & liabilties
1,515,101
1,365,380
1,373,436
1,259,771
Cash and cash equivalents
For the purposes of the cash flow 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)
1,253,449
854,019
(51,539)
2,055,929
1,205,196
949,214
(160,400)
1,994,010
966,707
796,180
(116,019)
1,646,868
985,803
887,337
(238,272)
1,634,868
73
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
29. SEGMENT INFORMATION
The Bank and the Group comprise various segments, these being the provision of banking services and products, stock broking and insurance services and
asset financing. For management purposes, segment information determination is based on the risks involved with the provision of core banking services
and products and the Bank and Group’s management reporting system. The main business lines for management purposes are core banking services in
PNG, Banking Services in other jurisdictions outside PNG, insurance operations, stock broking, fund management and asset financing activities. The Bank
and Group’s business segments operate in Papua New Guinea, Fiji, Solomon Islands, Cook Islands, Tonga, Samoa, Vanuatu and Cambodia. Inter segment
adjustments reflect elimination entries in respect of inter segment income and expense allocations included funds transfer pricing.
Consolidated
All amounts are in K’000
Analysis by segments
Year ended 31 December 2018
Net interest income
Other income
Net insurance income
Total operating income
Operating expenses
Impairment expenses
Profit before income tax
Income tax
Net profit after income tax
Year ended 31 December 2017
Net interest income
Other income
Net insurance income
Total operating income
Operating expenses
Impairment expenses
Profit before income tax
Income tax
Net profit after income tax
PNG Bank
Non PNG Bank
Non Bank
Entities
Adjust Inter
Segments
Total
1,118,342
532,234
-
1,650,576
(632,446)
(56,130)
962,000
(287,802)
674,198
1,053,079
499,794
-
1,552,873
(626,860)
(44,633)
881,380
(257,967)
623,413
232,513
228,731
-
461,244
(236,598)
(22,227)
202,419
(51,409)
151,010
200,692
204,295
-
404,987
(212,647)
(24,732)
167,608
(42,360)
125,248
27,707
11,735
40,512
79,954
(18,624)
(4,023)
57,307
(12,885)
44,422
22,302
11,391
41,266
74,959
(20,937)
(8,313)
45,709
(11,194)
34,515
2,234
1,380,796
(26,704)
745,996
(1,599)
38,913
(26,069)
2,165,705
511
(887,157)
-
(82,380)
(25,558)
1,196,168
-
(352,096)
(25,558)
844,072
1,603
1,277,676
(34,636)
680,844
(1,436)
39,830
(34,469)
1,998,350
8,296
(852,148)
-
(77,678)
(26,173)
1,068,524
-
(311,521)
(26,173)
757,003
74
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
30. RELATED PARTY TRANSACTIONS
Related parties are considered to be enterprises or individuals with whom the Group is especially related because either they or the Bank are in a position
to significantly influence the outcome of transactions entered into with the Group, by virtue of being able to control, dominate or participate in a fiduciary
capacity, in decision-making functions or processes. The Group conducted transactions with the following classes of related parties during the year:
•
•
Directors and/or parties in which the director has significant influence
Key management personnel and other staff and/or parties in which the individual officer has significant influence
A number of banking transactions are entered into with these related parties in the normal course of business, and include loans, deposits, property
rentals, share transfers and foreign currency transactions. These transactions are carried out on commercial terms and market rates. For the year ended
31 December 2018, balances and transactions of accounts for Directors, including companies in which directorships were held by BSP directors, were as
follows:
All amounts are expressed in K’000
2018
2017
Consolidated
Customer deposits
Opening balances
Net movement
Closing balance
Interest paid
Loans, advances and other receivables from customers
Opening balances
Loans issued1
Interest
Charges
Loan repayments
Closing balance
17,731
13,194
30,925
24
631,650
458,213
44,390
3,376
(238,178)
899,451
65,503
(47,772)
17,731
18
673,674
84,939
27,901
3,752
(158,616)
631,650
1Includes Air Niugini Limited loan following Director Constantinou’s appointment to the Board of Air Niugini Limited during 2018. Air Niugini Limited
has been a customer of BSP since inception and had pre-existing facilities with BSP prior to 2018.
Subsidised transactions are provided for staff. Such transactions include marginal discounts on interest rates, and specific fee concessions. These
benefits 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 2018, staff account balances were as follows:
All amounts are expressed in K’000
Housing loans
Other loans
At 31 December
Cheque accounts
Savings accounts
At 31 December
2018
169,858
43,826
213,684
7,533
13,532
21,065
2017
155,698
51,819
207,517
6,097
15,583
21,680
75
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
31. BANK OPERATIONS, RISKS AND STRATEGIES IN USING
FINANCIAL INSTRUMENTS
All business operations must deal with a variety of operational and
financial risks. The business activities of a bank expose it to very critical
and specific risks, which are principally related to the Group’s primary
financial intermediary role in the financial markets, including the use of
financial instruments including derivatives. These risks (risk of an adverse
event in the financial markets that may result in loss of earnings) include
liquidity risk, foreign exchange risk, interest rate risk and credit risk.
The Group accepts deposits from customers at both fixed and floating rates
and for various periods and seeks to earn above average interest margins
by investing these funds in high quality assets. These margins are achieved
and increased by consolidating short-term funds and lending for longer
periods at higher rates whilst maintaining sufficient liquidity to meet all
claims that might fall due.
The Group also seeks to optimise 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 addition to directly
advancing funds to borrowers, the Group also enters into guarantees and
other commitments such as letters of credit, performance bonds, and
other bonds.
The Group also enters into transactions denominated in foreign currencies.
This activity generally requires the Group to take foreign currency positions
in order to exploit short term movements in the foreign currency market.
The Board places limits on the size of these positions. The Group also has
a policy of using offsetting commitments for foreign exchange contracts,
effectively minimising the risk of loss due to adverse movements in foreign
currencies.
Risk in the Group is managed through a system of delegated limits.
These limits set the maximum level of risk that can be assumed by each
operational unit and the Group as a whole. The limits are delegated
from the Board of Directors to executive management and hence to the
respective operational managers.
The risk management framework establishes roles, responsibilities and
accountabilities of the Asset and Liability Committee, the Credit Committee,
the Operational Risk Committee and the Executive Committee, the specific
management committees charged with the responsibility for ensuring
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 committees, to the Audit, Risk and Compliance Committee of
the Board, and ultimately to the Board of Directors.
32. CAPITAL ADEQUACY
The Group is required to comply with various prudential standards issued
by the Bank of Papua New Guinea (BPNG), the official authority for the
prudential supervision of banks and similar financial institutions in Papua
New Guinea. Additionally, subsidiaries and branches in Fiji, Solomon
Islands, Cook Islands, Samoa, Tonga, Vanuatu and Cambodia are required
to adhere to prudential 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), National Reserve Bank
of Tonga (NRBT), Reserve Bank of Vanuatu (RBV) and the National Bank
of Cambodia (NBC). One of the most critical prudential 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 potential losses. The BPNG follows the prudential guidelines set
by the Bank of International Settlements under the terms of the Basel
Accord. The BPNG revised prudential standard 1/2003, Capital Adequacy,
prescribes ranges of overall capital ratios to measure whether a bank is
under, adequately, or well capitalised, and also applies the leverage capital
ratio. The Group complies with the prevailing prudential requirements for
total capital and leverage capital. As at 31 December 2018, the Group’s
total capital adequacy ratio and leverage capital ratio satisfied 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 ratio 12% and the leverage ratio 6%.
The measure of capital used for the purposes of prudential supervision is
referred to as base capital. Total base capital varies from the balance of
capital shown on the Statement of Financial Position and is made up of tier
1 capital (core) and tier 2 capital (supplementary). Tier 1 capital is obtained
by deducting from equity capital and audited retained earnings (or losses),
intangible assets including deferred tax assets. Tier 2 capital cannot exceed
the amount of tier 1 capital, and can include subordinated loan capital,
specified asset revaluation reserves, un-audited profits (or losses) and a
small percentage of general loan loss provisions. The leverage capital ratio
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 weightings (0, 20, 50 and 100 per cent) according to risk
classification criteria set by the BPNG. Off-balance sheet exposures are risk
weighted in the same way after converting them to on-balance sheet credit
equivalents using BPNG specified credit conversion factors.
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 securities
All other assets
Off-balance sheet items
Total
Balance sheet/notional amount
Risk weighted amount
2018
2017
2018
2017
2,938,993
12,530,649
5,050,143
2,530,275
2,235,846
2,803,574
11,209,493
5,755,953
2,600,841
2,110,483
19,502
9,813,150
188,343
1,444,738
322,716
-
8,333,566
147,048
1,611,670
303,195
25,285,906
24,480,344
11,788,449
10,395,479
Capital Ratios
Capital (K’000)
Capital Adequacy Ratio (%)
a) Tier 1 capital
Tier 1 + Tier 2 capital
b) Leverage Capital Ratio
76
2018
2,338,587
2,694,901
2017
2,212,167
2,549,443
2018
19.8%
22.9%
10.3%
2017
21.3%
24.5%
10.0%
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 33. CREDIT RISK AND ASSET QUALITY
33.1 Credit Risk
The Group incurs risk with regard to loans, advances and other receivables
due from customers and other monies or investments held with financial
institutions. Credit risk is the likelihood of future financial loss resulting
from the failure of clients or counter-parties to meet contractual obligations
to 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 statistical techniques. Comprehensive credit
standards and approval limits have been formulated and approved by
the Credit Committee. The Credit Committee (which reports to the Board
through the Executive and Chief Executive Officer) is responsible for the
development and implementation of credit policy and loan portfolio
review methodology. The Credit Committee is the final arbiter of risk
management and loan risk concentration.
The Group has in place processes that identify, assess and control
credit risk in relation to the loan portfolio, 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 Group assigns quality indicators to its credit
exposures to determine the asset quality profile.
33.1.1 Credit Risk Measurement
a) Loans and advances (incl. loan commitments and guarantees)
The estimation of credit exposure for risk management purposes is complex
and requires the use of models, as the exposure varies with changes in
market conditions, expected cash flows and the passage of time. The
assessment of credit risk of a portfolio of assets entails further estimations
as to the likelihood of defaults occurring, of the associated loss ratios and
of default correlations between counterparties. The Group measures credit
risk using Probability of Default (PD), Exposure at Default (EAD) and Loss
Given Default (LGD).
Credit risk grading
The Group uses an internal credit risk grading system that reflects its
assessment of the probability of default of individual counterparties.
Borrower and loan specific information collected at the time of application
(such as disposable income, and level of collateral for retail exposures; and
turnover and industry type for wholesale exposures) is fed into this rating
model. This is supplemented with external data such as credit bureau
scoring information on individual borrowers. In addition, the models
enable expert judgement from the Chief Risk Officer to be fed into the
final internal credit rating for each exposure. This allows for considerations
which may not be captured as part of the other data inputs into the model.
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
The Group’s rating method comprises 11 rating levels for instruments not
in default (1 to 11) and three default classes (12 to 14). The master scale
assigns each rating category a specified range of probabilities of default,
which is stable over time. The rating methods are subject to an annual
validation and recalibration so that they reflect the latest projections in the
light of all actually observed defaults.
Group Internal Scale
S&P Letter Grade
Description
1
2
3
4
5
6
7
8
9
10
11
12
13
14
BBB+
BBB
BBB-
BB+
BB
BB-
B+
B
B-
CCC+
CCC
CCC-
D-I
D-II
Standard Monitoring
Special Monitoring
Substandard
Doubtful
Loss
33.1.2 Expected Credit Loss Management
IFRS 9 outlines a ‘three-stage’ model for impairment based on changes in
credit quality since initial recognition, as summarised below:
•
•
•
A financial instrument that is not credit-impaired on initial recognition
is classified in ‘Stage 1’ and has its credit risk continuously monitored
by the Group.
If a significant increase in credit risk (‘SICR’) since initial recognition
is identified, the financial instrument is moved to ‘Stage 2’ but is not
yet deemed to be credit-impaired. Please refer to note 33.1.2.1 for a
description of how the Group determines when a significant increase
in credit risk has occurred.
If the financial instrument is credit-impaired, the financial instrument
is then moved to ‘Stage 3’. Please refer to note 33.1.2.2 for a
description of how the Group defines credit-impaired and default.
Financial instruments in Stage 1 have their ECL measured at an amount
equal to the portion of lifetime expected credit losses that result from
default events possible within the next 12 months. Instruments in Stages 2
or 3 have their ECL measured based on expected credit losses on a lifetime
basis. Please refer to note 33.1.2.3 for a description of inputs, assumptions
and estimation techniques used in measuring the ECL.
•
A pervasive concept in measuring ECL in accordance with IFRS 9 is
that it should consider forward- looking information. Note 33.1.2.4
includes an explanation of how the Group has incorporated this in its
ECL models.
77
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
33. CREDIT RISK AND ASSET QUALITY (continued)
The following diagram summarises the impairment requirements under IFRS 9.
Change in credit quality since initial recognition
Stage 1
(Initial recognition)
Stage 2
(Significant increase in credit risk since initial
recognition)
Stage 3
(Credit-impaired assets)
12-month expected credit losses
Lifetime expected credit losses
Lifetime expected credit losses
The key judgements and assumptions adopted by the Group in addressing the requirements of the standard are discussed below:
33.1.2.1 Significant Increase in Credit Risk (SICR)
The Group considers a financial instrument to have experienced a signif-
icant increase in credit risk when one or more of the following quantita-
tive, qualitative or backstop criteria have been met:
•
Qualitative Criteria - if the instrument meets one or more of the
following criteria:
- Significant adverse changes in business, financial and/or
economic conditions in which the borrower operates
- Actual or expected forbearance or restructuring
- Actual or expected significant adverse change in operating
results of the borrower
- Significant change in collateral value (secured facilities only)
which is expected to increase risk of default
- Early signs of cash flow/liquidity problems such as delay in
servicing of trade creditors/loans
•
•
Quantitative criteria - applies to performing loans risk graded at
10 or 11 as per BSPs credit rating system which are ‘watch list’
categories. By definition, these have experienced a SICR event since
inception hence needs to be classified as Stage 2, with lifetime PDs
applicable. This criteria applies regardless of whether loans in these
two RGs are in arrears or not.
Backstop - A backstop is applied and the financial instrument con-
sidered to have experienced a significant increase in credit risk if the
borrower is more than 30 days past due on its contractual payments.
The Group has not used the low credit risk exemption for any finan-
cial instrument in the year ending 31 December 2018.
33.1.2.2 Definition of default and credit-impaired assets
The Group defines a financial instrument as in default, which is fully
aligned with the definition of credit- impaired, when it meets one or more
of the following criteria:
Quantitative criteria
The borrower is more than 90 days past due on its contractual payments.
Qualitative criteria
The borrower meets unlikeliness to pay criteria, which indicates the bor-
rower is in significant financial difficulty. These are instances where:
•
•
•
•
•
•
•
•
The borrower is in long-term forbearance
The borrower is deceased
The borrower is insolvent
The borrower is in breach of financial covenant(s)
An active market for that financial asset has disappeared because of
financial difficulties
Concessions have been made by the lender relating to the borrow-
er’s financial difficulty
It is becoming probable that the borrower will enter bankruptcy
Financial assets are purchased or originated at a deep discount that
reflects the incurred credit losses.
The criteria above have been applied to all financial instruments held
by the Group and are consistent with the definition of default used for
internal credit risk management purposes. The default definition has been
applied consistently to model the Probability of Default (PD), Exposure
78
at Default (EAD) and Loss given Default (LGD) throughout the Group’s
expected loss calculations.
An instrument is considered to no longer be in default (i.e. to have cured)
when it no longer meets any of the default criteria for a consecutive
period of six months. This period of six months has been determined
based on an analysis which considers the likelihood of a financial instru-
ment returning to default status after cure using different possible cure
definitions.
33.1.2.3 Measuring ECL – Explanation of inputs, assumptions and esti-
mation techniques
The Expected Credit Loss (ECL) is measured on either a 12-month (12M)
or Lifetime basis depending on whether a significant increase in credit risk
has occurred since initial recognition or whether an asset is considered to
be credit-impaired. Expected credit losses is the product of the Probability
of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD),
defined as follows:
•
•
•
The PD represents the likelihood of a borrower defaulting on its
financial obligation (as per “Definition of default and credit-im-
paired” above), either over the next 12 months (12M PD), or over
the remaining lifetime (Lifetime PD) of the obligation.
EAD is based on the amounts the Group expects to be owed at
the time of default, over the next 12 months (12M EAD) or over
the remaining lifetime (Lifetime EAD). For example, for a revolving
commitment, the Group includes the current drawn balance plus
any further amount that is expected to be drawn up to the current
contractual limit by the time of default, should it occur.
Loss Given Default (LGD) represents the Group’s expectation of the
extent of loss on a defaulted exposure. LGD varies by type of coun-
terparty, type and seniority of claim and availability of collateral or
other credit support. LGD is expressed as a percentage loss per unit
of exposure at the time of default (EAD).
Forward-looking economic information is also included in determining the
12-month and lifetime PD, EAD and LGD. These assumptions vary by prod-
uct type. Refer to note 33.1.2.4 for an explanation of forward- looking
information and its inclusion in ECL calculations. Model adjustments are
also included within the ECL allowance. Model adjustments are used in
circumstances where it is judged that the existing inputs, assumptions and
model techniques do not capture all relevant risk factors. The emergence
of new macroeconomic, microeconomic factors, changes to parameters or
credit risk data not incorporated current parameters are examples of such
circumstance.
The Group used statistical models to convert historical PDs into forward
looking lifetime PDs. The conversion process looks at the historical rela-
tionship between long-term PDs for a particular year and the observed
(annual) default rate for the same year (called the ‘Z-factor’) and a set
of systematic factors for the year. The Group has performed historical
analysis and identified the key economic variables impacting credit risk
and expected credit losses which are as follows:
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
33. CREDIT RISK AND ASSET QUALITY (continued)
•
•
•
•
•
•
GDP Growth (%)
Change in Unemployment (%)
Change in S&P 500 (%)
Change in Energy Index (%)
Change in Non-Energy Index (%)
Change in the Proportion of Downgrades (%)
These are then compared to the expected systematic factors and long-term PDs for a future year to estimate the PiT PDs for that future year. Forecasts
of these economic variables (the “base economic scenario”) are provided by the Group’s Strategy team and provide the best estimate view of the econ-
omy over the next five years. Z-factors are estimated for five years based on forecast systematic data and all future years from year 6 are adjusted using
Z- factors which diminish in magnitude from the one estimated for year 5.
Economic variable assumptions
The period-end assumptions used for the ECL estimate as at 31 December 2018 are set out below. The scenarios “base”, “upside” and “downside” were
used for all portfolios.
Economic Variable
GDP Growth (%)
Change in Unemployment
(% total lab force) (%)
Change in S&P 500 Index (%)
Change in Energy Index (%)
Change in Non-Energy Index (%)
Change in the Proportion of Downgrades (%)
Scenario
Base
Upside
Downside
Base
Upside
Downside
Base
Upside
Downside
Base
Upside
Downside
Base
Upside
Downside
Base
Upside
Downside
2019
3.00%
3.90%
2.50%
0.0%
-1.0%
5.0%
2020
2.90%
3.80%
2.40%
-0.1%
-1.0%
5.0%
2.20%
-0.54%
2.70%
-0.04%
1.70%
-1.04%
-1.15%
-0.81%
-0.65%
-0.31%
-1.65%
-1.31%
2021
2.90%
3.70%
2.40%
0.0%
-1.0%
5.0%
-0.14%
0.36%
-0.64%
-0.58%
-0.08%
-1.08%
2022
2.90%
3.70%
2.40%
0.0%
-1.0%
5.0%
0.00%
0.50%
-0.50%
-0.47%
0.03%
-0.97%
2018
3.10%
3.90%
2.60%
0.0%
-1.0%
5.0%
3.12%
3.43%
2.81%
1.39%
1.89%
0.89%
-2.02%
-1.52%
-2.52%
0.90%
-1.00%
10.00%
The weightings assigned to each economic scenario at 31 December 2018 were as follows:
Scenario
Weight
Base
60.00%
Upside
10.00%
Downside
30.00%
Other forward-looking considerations not otherwise incorporated within the above scenarios, such as the impact of any regulatory, legislative or
political changes, have also been considered, but are not deemed to have a material impact and therefore no adjustment has been made to the ECL for
such factors. This is reviewed and monitored for appropriateness on an annual basis.
Sensitivity Analysis
The most significant assumptions affecting the ECL allowance are as follows:
i) GDP given the significant impact on business performance and collateral valuations; and
ii) Change in proportion of downgrades given that it is “BSP specific” and addresses potential signs of stress both within credit markets in general and in
client specific portfolios.
79
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
33. CREDIT RISK AND ASSET QUALITY (continued)
Set out below are the changes to the ECL as at 31 December 2018 that would result from reasonably possible changes in these parameters from the
actual assumptions used in the Group’s economic variable assumptions:
GDP Growth Rate
(GDP growth rate assumptions tested at 80% and 110% for all 3 scenarios)
Change in proportion of downgrades
(Upside scenario increased from -1% to -5%, downside scenario increased from 10% to 20%).
Change in Scenario weighting
(Upside scenario increased from 10% to 30%, downside scenario decreased from 30% to 10%).
[+10%]
K’000
(17,586)
[+20%]
K’000
4,391
[-20%]
K’000
48,446
[-5%]
K’000
(1,451)
[K’000
(30,002)
33.1.2.5 Grouping of instruments for losses measured on a collective basis
For expected credit loss provisions modelled on a collective basis, a grouping of exposures is performed on the basis of shared risk characteristics, such
that risk exposures within a group are homogeneous.
In performing this grouping, there must be sufficient information for the group to be statistically credible. Where sufficient information is not available
internally, the Group has considered benchmarking internal/external supplementary data to use for modelling purposes. The characteristics and any
supplementary data used to determine groupings are outlined below:
Retail – Groupings for collective measurement
•
•
•
•
•
Loan to value ratio band
Risk Grade
Product type (e.g. Residential/Buy to Let mortgage, Overdraft, Credit Card)
Repayment type (e.g. Repayment/Interest only)
Utilisation band
Notwithstanding the grouping detailed above, all stage 3 loans are individually assessed.
The appropriateness of groupings is monitored and reviewed on a periodic basis by the Credit Risk team.
33.1.3 Credit Risk Exposure
33.1.3.1 Maximum exposure to credit risk – Financial instruments subject to impairment
The following table contains an analysis of the credit risk exposure of financial instruments for which an ECL allowance is recognised. The gross carrying
amount of financial assets below also represents the Group’s maximum exposure to credit risk on these assets.
ECL staging
(PGK’000)
Credit grade
2018
2017
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
Total
Total
Standard monitoring
14,286,314
171,250
-
14,457,564
13,183,916
Special monitoring
-
588,756
-
588,756
Default
-
-
Gross carrying amount
14,286,314
760,006
350,285
350,285
Loss allowance
Carrying amount
(256,545)
(197,800)
(179,222)
14,029,769
562,206
171,063
14,763,038
350,285
15,396,605
(633,567)
397,673
260,703
13,842,292
(577,186)
13,265,105
Information on how the Expected Credit Loss (ECL) is measured and how the three stages above are determined is included in note 33.1.2 ‘Expected
credit loss measurement’. The gross carrying amount includes off balance sheet items which are in scope for impairment.
80
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
33. CREDIT RISK AND ASSET QUALITY (continued)
33.1.3.2 Maximum exposure to credit risk – Financial instruments not subject to impairment
The following table contains an analysis of the maximum credit risk exposure from financial assets not subject to impairment (i.e. FVPL):
Trading assets
Equity Securities
Maximum exposure to credit risk
PGK’000
188,343
33.1.3.3 Collateral and other credit enhancements
The Group employs a range of policies and practices to mitigate credit risk. The most common of these is accepting collateral for funds advanced. The
Group has internal policies on the acceptability of specific classes of collateral or credit risk mitigation.
The Group prepares a valuation of the collateral obtained as part of the loan origination process. This assessment is reviewed periodically. The principal
collateral types for loans and advances are:
• Mortgages over residential properties;
•
•
Charges over business assets such as premises, inventory and accounts receivable; and
Charges over financial instruments such as debt securities and equities.
Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured.
Collateral held as security for financial assets other than loans and advances depends on the nature of the instrument. Debt securities, treasury and
other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured by portfolios of
financial instruments.
The Group’s policies regarding obtaining collateral have not significantly changed during the reporting period and there has been no significant change
in the overall quality of the collateral held by the Group since the prior period.
The Group closely monitors collateral held for financial assets considered to be credit-impaired, as it becomes more likely that the Group will take pos-
session of collateral to mitigate potential credit losses.
Financial assets that are credit-impaired and related collateral held in order to mitigate potential losses are shown below:
Credit-impaired assets
Loans to individuals:
• Overdrafts
• Credit cards
• Term loans
• Mortgages
Loans to corporate entities:
• Large corporate customers
• Small and medium-sized enterprises (SMEs)
Total credit-impaired assets
Gross
exposure
PGK’000
Impairment
allowance
PGK’000
380
75
9,454
65,723
183,836
90,817
350,285
289
25
3,657
25,432
101,974
47,845
179,222
Carrying
amount
PGK’000
91
50
5,797
40,291
81,862
42,972
171,063
Fair value of
collateral held
PGK’000
443
465
13,229
79,585
84,167
123,599
301,488
81
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
33. CREDIT RISK AND ASSET QUALITY (continued)
33.1.4 Loss allowance
The loss allowance recognised in the period is impacted by a variety of factors, as described below:
•
Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing significant increases (or decreases) of credit risk or becoming
credit-impaired in the period, and the consequent “step up” (or “step down”) between 12-month and Lifetime ECL;
Additional allowances for new financial instruments recognised during the period, as well as releases for financial instruments de-recognised in the
period;
Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period, arising from regular refreshing of inputs to models;
Impacts on the measurement of ECL due to changes made to models and assumptions;
Foreign exchange retranslations for assets denominated in foreign currencies and other movements; and
Financial assets derecognised during the period and write-offs of allowances related to assets that were written off during the period.
•
•
•
•
•
The following tables explain the changes in the loss allowance between the beginning and the end of the annual period due to these factors:
Expected Credit Loss
12-month ECL
Lifetime ECL
PGK’000
PGK’000
Stage 1
Stage 2
Movements with P&L impact
Transfers:
Transfer from Stage 1 to Stage 2
Transfer from Stage 1 to Stage 3
Transfer from Stage 2 to Stage 1
Transfer from Stage 2 to Stage 3
Transfer from Stage 3 to Stage 1
Transfer from Stage 3 to Stage 2
New financial assets originated or purchased
Changes in PDs/LGDs/EADs/others
Total net P&L charge during the period
(7,694)
(537)
2,372
-
-
37
63,851
(77,475)
(19,446)
70,388
-
(9,992)
(4,832)
21
-
29,384
(50,489)
34,480
Stage 3
Lifetime ECL
PGK’000
-
9,933
-
9,607
(100)
(129)
37,579
(5,851)
51,039
The movement in gross carrying amounts between the beginning and the end of the annual period are included in the table below:
Gross Carrying Amount
12-month Balance
Lifetime Balance
Lifetime Balance
PGK’000
PGK’000
PGK’000
Stage 1
Stage 2
Stage 3
Movements in gross carrying amount with
P&L impact
Transfers:
Transfer from Stage 1 to Stage 2
Transfer from Stage 1 to Stage 3
Transfer from Stage 2 to Stage 1
Transfer from Stage 2 to Stage 3
Transfer from Stage 3 to Stage 1
Transfer from Stage 3 to Stage 2
New financial assets originated or purchased
Changes in PDs/LGDs/EADs/others
Total movement in gross carrying amount
with P&L impact
82
(388,467)
(50,774)
109,061
-
-
1,450
3,973,039
(2,318,887)
1,325,422
377,888
-
(98,313)
(37,591)
441
-
163,444
(267,131)
138,738
-
48,142
-
33,305
(645)
(1,787)
48,513
(37,374)
90,154
Total
PGK’000
62,694
9,396
(7,620)
4,775
(79)
(92)
130,814
(133,815)
66,073
Total
PGK’000
(10,579)
(2,632)
10,748
(4,286)
(204)
(337)
4,184,996
(2,623,392)
1,554,314
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
33. CREDIT RISK AND ASSET QUALITY (continued)
33.1.5 Write-off policy
The Group writes off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded there is no reasonable
expectation of recovery. Indicators that there is no reasonable expectation of recovery include (i) ceasing enforcement activity and (ii) where the
Group’s recovery method is foreclosing on collateral and the value of the collateral is such that there is no reasonable expectation of recovering in full.
The Group may write-off financial assets that are still subject to enforcement activity. The Group still seeks to recover amounts it is legally owed in full,
but which have been partially written off due to no reasonable expectation of full recovery.
33.1.6 Credit Quality – Prudential Guidelines
The Bank of Papua New Guinea has maintained a revised prudential standard for asset quality since October 2003. The revised standard specifies more
detailed criteria for the classification of loans into various grades of default risk and corresponding loss provision levels as a consequence of those grad-
ings.
An analysis by credit quality of loans outstanding at 31 December 2018 is as follows:
Consolidated (PGK’000)
Overdrafts
Term loans
Mortgages
Lease financing
Policy loans
Total
Neither past due nor impaired
725,771
8,444,485
2,233,878
229,298
85,597
11,719,029
Past due but not impaired
- Less than 30 days
- 30 to 90 days
- 91 to 360 days
- More than 360 days
Individually impaired loans
- Less than 30 days
- 30 to 90 days
- 91 to 360 days
- More than 360 days
188,425
9,673
1,280
2,772
630,420
160,904
17,186
511
110,356
54,015
4,266
662
12,339
7,144
756
-
202,150
809,021
169,299
20,239
2,236
3
3,025
1,329
6,593
8,295
38,814
23,102
45,504
1,755
12,990
42,947
55,867
115,715
113,559
558
215
1,747
6,071
8,591
-
-
-
-
-
20
-
-
-
20
941,540
231,736
23,488
3,945
1,200,709
12,864
52,022
70,821
108,771
244,478
Total gross loans, advances and other
receivables from customers
934,514
9,369,221
2,516,736
258,128
85,617
13,164,216
Less impairment provisions
-
-
-
-
-
(633,567)
Net Loans and Advances
934,514
9,369,221
2,516,736
258,128
85,617
12,530,649
33.1.7 Credit related commitments
These instruments are used to ensure that funds are available to a customer as required. The Group deals principally in the credit related commitments
set out below.
Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer can-
not meet its obligations to third parties, carry the same risk as loans.
Documentary and trade letters of credit are written undertakings by the Group on behalf of a customer, authorising a third party to draw drafts on the
Group for specified amounts under specified terms and conditions. They are collateralised by the underlying shipments of goods to which they relate
and therefore carry less risk than a conventional loan.
Commitments to extend credit represent undrawn portions of authorisations to extend credit in the form of loans, guarantees or letters of credit.
Whilst the potential 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 contingent upon customers maintaining specific credit standards. 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.
83
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
33. CREDIT RISK AND ASSET QUALITY (continued)
33.1.8 Economic sector risk concentrations
Economic sector risk concentrations within the customer loan portfolio are as follows:
Consolidated
All amounts are expressed in K’000
Commerce, finance and other business
Private households
Government and public authorities
Agriculture
Transport and communication
Manufacturing
Construction
Net loan portfolio balance
33.1.9 Ownership risk concentrations
Ownership risk concentrations within the customer loan portfolio are as follows:
Corporate / Commercial
Government
Retail
Net loan portfolio balance
34. LIQUIDITY RISK
2018
6,824,314
2,569,986
356,166
277,228
%
54
21
3
2
2017
5,910,485
2,421,546
374,109
249,295
1,393,929
11
1,149,570
231,717
877,309
2
7
226,427
878,061
%
53
22
3
2
10
2
8
12,530,649
100
11,209,493
100
7,206,355
2,661,688
2,662,606
58
21
21
5,885,419
2,728,957
2,595,117
53
24
23
12,530,649
100
11,209,493
100
Liquidity risk is the risk of being unable to meet financial obligations as they fall due. The Board, through the Asset and Liability Committee, sets liquidity
policy to ensure that the Group has sufficient funds available to meet all its known and potential obligations.
The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of banking
activities. An unmatched position potentially enhances profitability, but can also increase the risk of losses.
Short-term mismatch of asset and liability maturity at 31 December 2018
The maturity profile of material Assets and Liabilities as at 31 December 2018 is shown in the following schedule. The mismatching of maturity of
assets and liabilities indicates an apparent negative net “current” asset position. However, as stated in the preceding paragraph, mismatched positions
are established and managed to achieve profit opportunities that arise from them, particularly in a normal yield curve environment. Accordingly, this
mismatched maturity position is considered manageable by the Group, and does not impair the ability of the Group to meet its financial obligations as
they fall due. The Directors are also of the view that the Group is able to meet its financial obligations as they fall due for the following additional reasons:
•
The Bank and the Group complies with the Cash Reserve Requirement (“CRR”) set by the regulatory authorities of the jurisdictions that the Bank
operates in. The CRR specifies 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 respective Central Bank. The Bank complies with this daily requirement on an ongoing basis.
84
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
34. LIQUIDITY RISK (continued)
Maturity of assets and liabilities
Consolidated
All amounts are expressed in K'000
As at 31 December 2018
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 and Central Bank bills
Amounts due from other banks
Loans, advances and other receivables from
customers
Other financial assets
Total assets
Liabilities
2,938,993
498,713
844,023
2,360,949
1,738,856
-
-
638,336
1,393,413
-
8,518
-
31,186
1,478
-
-
-
2,938,993
2,561,648
854,019
516,769
3,088,318
4,451,618
5,360,176
15,777,830
181,435
710,989
1,652,833
716,782
5,000,895
8,381,534
1,336,540
5,201,238
6,137,115
6,076,958
27,133,385
Amounts due to other banks
(30,193)
81,732
-
-
-
51,539
Customer Deposits
Other liabilities
Other provisions
Total liabilities
Net liquidity gap
As at 31 December 2017
Total assets
Total liabilities
Net liquidity gap
35. OPERATIONAL RISK
13,328,791
931,491
2,073,361
274,900
1,846,645
18,455,188
1,576,831
194,103
-
-
-
-
-
-
122,686
1,699,517
-
194,103
15,069,532
1,013,223
2,073,361
274,900
1,969,331
20,400,347
(6,687,998)
323,317
3,127,877
5,862,215
4,107,627
6,733,038
7,498,193
1,625,831
5,625,578
6,333,927
5,032,518
26,116,047
14,218,853
1,287,110
2,247,610
477,601
1,672,447
19,903,621
(6,720,660)
338,721
3,377,968
5,856,326
3,360,071
6,212,426
Operational risk is the potential exposure to unexpected financial or non-financial losses arising from the way in which the Group conducts its business.
Examples of operational risks include employee errors, systems failures, fire, floods, or similar losses to physical assets, fraud, or criminal activity.
Operational risk is managed through formal policies, documented procedures, business practices and compliance monitoring.
An operational risk management function is responsible for the maintenance of these policies, procedures practices and monitoring the organization’s
compliance with them. The Operational Risk Committee coordinates the management process across the organization.
An independent internal audit function also conducts regular reviews to monitor compliance with approved BPNG standards and examines the general
standard of control.
The Operational Risk Committee and the internal audit function mandatorily report to the Board Risk and Compliance Committee.
85
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
36. FOREIGN EXCHANGE RISK
Foreign exchange risk is the risk to earnings caused by a change in foreign exchange rates on open currency positions. The objective of foreign exchange
risk management within the Group is to minimise the impact on earnings of any such movement.
The Group accepts foreign currency denominated transactions and therefore has exposure to movements in foreign currency. The Group has a policy to
offset these transactions to minimise daily exposure. As foreign exchange contracts generally consist of offsetting commitments, they involve only limited
foreign exchange risk to the Group and material loss is not envisaged.
Currency concentration of assets, liabilities and off-balance sheet items
Consolidated
All amounts are expressed in K'000
As at 31 December 2018
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 financial assets
Other assets
Total assets
Liabilities
1,725,376
2,256,890
137,665
463,522
29,441
95,411
7,360,263
2,990,790
2,075,712
997,942
443,881
522,597
336,239
197,659
123,792
503,043
-
52,804
4,902
-
145,900
463,146
408,954
10,710
351,251
2,938,993
2,494,700
854,019
1,213,407
12,530,649
-
575
35,850
102,338
2,555,443
1,676,256
14,553,848
4,545,642
1,213,537
614,523
2,122,510
23,050,060
Amounts due to other banks
(32,540)
(18,218)
(781)
-
-
(51,539)
Customer Deposits
Other liabilities
Total liabilities
(12,207,879)
(2,938,510)
(914,361)
(384,912)
(1,787,104)
(18,232,766)
(599,248)
(1,055,312)
(25,372)
(149,248)
(64,440)
(1,893,620)
(12,839,667)
(4,012,040)
(940,514)
(534,160)
(1,851,544)
(20,177,925)
Net on - balance sheet position
1,714,181
533,602
273,023
80,363
270,966
2,872,135
Off - balance sheet net notional position
(3,263)
-
-
(171,679)
Credit commitments
1,274,345
522,309
76,059
-
174,006
176,890
(936)
2,049,603
As at 31 December 2017
Total Assets
Total Liabilities
14,374,723
4,144,079
1,115,219
590,584
2,145,256
22,369,861
(12,431,015)
(3,760,162)
(886,515)
(714,752)
(1,949,082)
(19,741,526)
Net on - balance sheet position
1,943,708
383,917
228,704
(124,168)
196,174
Off - balance sheet net notional position
(299)
-
-
(46,380)
Credit commitments
1,032,450
373,703
9,355
-
30,583
52,072
2,628,335
(16,096)
1,467,580
The following table presents sensitivities of profit or loss and equity to possible changes in exchange rates applied at the end of the reporting period,
relative to the functional currency of the respective Group entities, with all other variables held constant:
All amounts are expressed in K'000
USD strengthening by 1% (2017 – 1%)
USD dollar weakening by 1% (2017 – 1%)
AUD strengthening by 1% (2017 – 1%)
AUD dollar weakening by 1% (2017 – 1%)
At 31 December 2018
At 31 December 2017
Impact on profit or loss
Impact on equity
Impact on profit or loss
Impact on equity
613
(601)
(37)
36
613
(601)
(37)
36
1,146
(1,123)
(39)
38
1,146
(1,123)
(39)
38
86
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
37. INTEREST RATE RISK
Interest rate risk in the balance sheet arises from the potential for a change in interest rate to have an adverse effect on the revenue earnings in the
current reporting period and future years. As interest rates and yield curves change over time the Group may be exposed to a loss in earnings due to the
effects of interest rates on the structure of the balance sheet. Sensitivity to interest rates arises from mismatches in the re-pricing dates, cash flows and
other characteristics of the assets and their corresponding liability funding. These mismatches are actively managed as part of the overall interest rate
risk management process governed by the Assets and Liabilities Committee (ALCO), which meets regularly to review the effects of fluctuations in the
prevailing levels of market interest rates on the financial position and cash flows of the Group. The objective of interest rate risk control is to minimise
these fluctuations in value and net interest income over time, providing secure and stable sustainable net interest earnings in the long term. The table
below illustrates the interest sensitivity of assets and liabilities at the balance date.
Given the profile of assets and liabilities as at 31 December 2018 and prevailing rates of interest, a 1% increase in markets rates will result in a K45 million
increase in net interest income, whilst a 1% decrease in rates will result in a K61.8 million decrease in net interest income.
Interest sensitivity of assets, liabilities and off balance sheet items re-pricing analysis
Consolidated
All amounts are expressed in K'000
As at 31 December 2018
Assets
Cash and Central Bank assets
Treasury and Central Bank bills
Amounts due from other banks
Statutory deposits - Central Bank
Up to 1
month
-
501,889
451,160
-
1-3 months
3-12 months
1-5 years
Over 5 years
-
-
617,953
1,344,620
-
-
8,517
-
-
30,238
1,478
-
Loans, advances and other receivables from
customers
10,754,608
192,658
806,643
557,100
Other financial assets
435,077
51,591
536,149
1,265,005
-
-
-
-
12,142,734
862,202
2,695,929
1,853,821
662,840
Other assets
Total assets
Liabilities
Amounts due to other banks
17,338
16,885
-
-
Customer deposits
Other liabilities
Other provisions
Total liabilities
8,058,906
925,624
1,761,696
156,585
-
5,637
-
-
-
-
-
-
8,081,881
942,509
1,761,696
156,585
Interest sensitivity gap
4,060,853
(80,307)
934,233
1,697,236
As at 31 December 2017
Assets
Cash and Central Bank assets
Treasury and Central Bank Bills
Amounts due from other banks
Statutory deposits - Central Bank
Loans, advances and other receivables from
customers
Other financial assets
Other assets
Total assets
Liabilities
-
-
-
848,977
1,911,632
35,521
9,712
-
-
-
-
502,496
483,195
-
9,618,884
115,710
-
5,305
-
177,977
163,685
-
783,207
498,884
509,298
1,346,239
-
-
130,541
476,530
-
10,720,285
1,195,944
3,213,849
1,880,644
607,071
-
-
-
-
219,640
443,200
-
-
4
105,525
-
105,529
557,311
-
-
-
-
Amounts due to other banks
93,829
18,806
-
-
Customer deposits
Other liabilities
Other Provisions
Total liabilities
7,928,614
1,196,875
2,148,215
153,629
-
-
-
-
199,294
75,525
-
-
8,022,443
1,215,681
2,347,509
229,154
-
65
-
-
65
Interest sensitivity gap
2,697,842
(19,737)
866,340
1,651,490
607,006
(3,174,606)
87
Non-interest
bearing
1,253,449
-
392,864
1,685,544
-
-
1,500,677
4,832,534
17,316
7,329,951
1,593,992
188,466
9,129,725
(4,297,191)
1,205,196
-
451,002
1,598,378
-
-
1,497,492
4,752,068
47,765
6,474,294
1,183,594
221,021
7,926,674
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
38. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
There is no material difference between the fair values and carrying values of the financial assets and liabilities of the Group.
The table below analyses the Group’s financial instruments carried at fair value, by levels in the fair value hierarchy.
The different levels have been defined as follows:
•
•
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.
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).
•
Consolidated
All amounts are expressed in K'000
At 31 December 2018
Financial assets
Equity securities
Non-financial assets
Land & buildings
Assets subject to operating lease
Total
Financial liabilities
Policy liabilities
Total liabilities
At 31 December 2017
Financial assets
Equity securities
Non - financial assets
Land & buildings
Assets subject to operating lease
Total
Financial liabilities
Policy liabilities
Total liabilities
Financial asset at fair value through profit & loss
Opening balance
Total gains and losses recognized in:
- Profit & loss
- Other comprehensive income
Closing balance
Level 1
Level 2
Level 3
Total
-
-
-
-
-
-
-
-
-
-
-
-
118,831
2,696
121,527
537,669
-
656,500
-
52,433
55,129
-
-
818,198
818,198
537,669
52,433
711,629
818,198
818,198
144,911
2,137
147,048
560,019
-
704,930
-
-
-
70,689
72,826
749,876
749,876
2018
72,825
(18,255)
-
54,570
560,019
70,689
777,756
749,876
749,876
2017
46,491
(5,977)
32,311
72,825
There were no changes in valuation technique for Level 3 recurring fair value measurements during the year ended 31 December 2018. Property, plant
and equipment represents commercial land and buildings owned by the Group based on valuations provided by independent valuers. The valuation is
based on the capitalisation method with an assessment of the property based on its potential earning capacity. Disposal cost for properties classified as
held for sale is not expected to be material.
In the normal course of trading, the Group enters into forward exchange contracts. The Group does not actively enter into or trade in, complex forms of
derivative financial instruments such as currency and interest rate swaps and options.
Exposures in foreign currencies arise where the Group transacts in foreign currencies. This price risk is minimised by entering into counterbalancing
positions for material exposures as they arise. Forward and spot foreign exchange contracts are used.
88
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
38. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (continued)
Forward exchange contracts outstanding at 31 December 2018 stated at the face value of the respective contracts are:
All amounts are expressed in respective FCY'000 AND K’000
USD
(55,913)
(8,793)
4,924
5,530
USD
(21,155)
(10,189)
6,801
9,890
AUD
(958)
-
55,700
-
AUD
(572)
-
9,850
-
As at 31 December 2018
Selling
Buying
As at 31 December 2017
Selling
Buying
FCY
Kina
FCY
Kina
FCY
Kina
FCY
Kina
39. INSURANCE
(a) Net insurance operating income
All amounts are expressed in K’000
Net insurance income
EURO
GBP
JPY
-
-
-
-
-
-
-
-
EURO
GBP
(149,380)
-
5,000
-
JPY
(270)
(540,715)
Other
(1,000)
Total
-
-
(8,793)
15,353
-
Other
(3,319)
-
5,530
Total
-
-
-
-
-
-
(10,189)
56,000
10,207
-
-
-
9,890
-
-
-
-
Consolidated
Bank
2018
38,913
2017
39,830
2018
-
2017
-
Presentation of insurance business results in the Statement of Comprehensive Income has been regrouped to more accurately reflect the insurance
business contribution to shareholder profits. Comparative figures have been adjusted to conform to changes in presentation in the current year.
(b) Policy liabilities
Key assumptions used in determining this liability are as follows:
Discount rates
For contracts in Statutory Fund 1 which have a Discretionary Participating Feature (DPF), the discount rate used is linked to the assets which back those
contracts. For 31st December 2018 this was 6.005% per annum (31st December 2017: 5.916% per annum), based on current 10 year government bond
yields and expected earnings from the investment portfolio. For contracts without DPF and Accident Business, a rate of 4.80% per annum was used at
31st December 2018 (31st December 2017: 4.80% 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 inflation has been assumed to be 3.5% per annum (31st
December 2017: 3.5% per annum) for determining future expenses.
Taxation
The rates of taxation enacted or substantially enacted at the date of the valuation (20%) are assumed to continue into the future.
Mortality and morbidity
Projected future rates of mortality for insured lives are based on the Fiji Mortality Statistics table FJ90-94 Male. These are then adjusted for the Group’s
own experience. The mortality rates used was 65% (31st December 2017: 70%) of the FJ90-94 Male table for participating business in Statutory Fund.
Rates of discontinuance
Best estimate assumptions for the incidence of withdrawal and discontinuance vary by product and duration and are based on the Group’s experience
which is reviewed regularly. Rates used were the same as last year.
89
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
for the Year Ended 31 December 2018
39. INSURANCE (continued)
Whole of Life and Endowment Insurance
Term Insurance
Accident Insurance
2018
14%
16%
17%
2017
14%
16%
17%
Basis of calculation of surrender values
Surrender values are based on the provisions specified in the policy contracts. There have been no changes to surrender bases during the period (or the
prior periods) which have materially affected the valuation result.
Discretionary Participating Business
For most participating 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 profit arising from this business. Profits
from these policies are split between contract holders and shareholders in accordance with the policy conditions which allow for shareholders to share
in allocations at a maximum rate of 20%. For business written between 1995 and 1998 the shareholder receives 11% of profits.
In applying the contract holders’ share of profits to provide bonuses, consideration is given to equity between generations 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 liabilities equates to the present value of assets supporting the business together with assumed future
investment returns, allowing for the shareholder’s right to participate in distributions.
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 classified as reinsurance contracts.
As the reinsurance agreements provide for indemnification by the Reinsurers against loss or liability, reinsurance income and expenses are recognised
separately in profit or loss when they become due and payable in accordance with the reinsurance agreements.
Reinsurance recoveries are recognised as claim recoveries under profit or loss. This is netted off against the claim expenses. Reinsurance premiums are
recognised as Reinsurance Expenses.
All amounts are expressed in K’000
Policy Liabilities
Opening balance
Translation movement
Increase in policy liabilities
Increase in policy liabilities on revaluation of land
Total policy liabilities
40. EVENTS OCCURRING AFTER BALANCE SHEET DATE
There have been no adjusting events after the end of the reporting period.
41. REMUNERATION OF AUDITOR
All amounts are expressed in K’000
Financial statement audits
Other services
2018
2017
749,876
(3,227)
71,616
(67)
818,198
640,043
38,525
64,813
6,495
749,876
Consolidated
Bank
2018
3,326
1,031
4,357
2017
2,871
1,350
4,221
2018
2,363
818
3,181
2017
2,137
1,130
3,267
The external auditor PricewaterhouseCoopers is also engaged in providing other services to the Bank and Group as required and as permitted by
prudential standards. The provision of other services included taxation and general training.
90
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Independent auditor’s report
To the shareholders of Bank of South Pacific Limited
Report on the audit of the financial statements of the Bank and the Group
Our opinion
We have audited the financial statements of Bank of South Pacific Limited (the Bank), which comprise the statements of financial position as at 31
December 2018, and the statements of comprehensive income, statements of changes in shareholders’ equity and statements of cash flows for the year
then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information
for both the Bank and the Group. The Group comprises the Bank and the entities it controlled at 31 December 2018 or from time to time during the
financial year.
In our opinion the accompanying financial statements:
• 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 financial position of the Bank and the Group as at 31 December 2018, and their financial performance and cash flows
for the year then ended.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Bank and Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for
Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our firm carries out other services for the Group in the areas of audit-related, non-audit related and tax advice services. The provision of these other
services has not impaired our independence as auditor of the Bank and the Group.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial statements are free from material misstatement. Misstatements may
arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking
into account the management structure of the Bank and the Group, their accounting processes and controls and the industries in which they operate.
PricewaterhouseCoopers, PWC Haus, 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
91
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Materiality
• For the purpose of our audit of the Group we
used overall group materiality of K60.2 million
which represents approximately 5% of the
Group’s profit before taxes.
• •We applied this threshold, together with
qualitative considerations, to determine the
scope of our audit and the nature, timing and
extent of our audit procedures and to evaluate
the effect of misstatements on the financial
statements as a whole.
• We chose Group profit before taxes as, in
our view, it is the metric against which the
performance of the Group is most commonly
measured and
is a generally accepted
benchmark.
Audit Scope
• We (PwC Papua New Guinea) conducted
the audit over all of the Group’s operations
in Papua New Guinea (PNG) and Solomon
Islands, which are the most significant to the
Group, and directed the scope of the audit
of other subsidiaries included in the Group
financial statements sufficient to express an
opinion on the financial statements as a whole.
• For the Group’s activities in Fiji, Samoa,
Tonga, Cambodia, Cook Islands, and Vanuatu
the audit work was performed by other PwC
network firms or other firms operating under
our instructions. In addition we visit significant
overseas operations and this year we met with
management and the local audit team in Fiji
and Vanuatu.
• We selected 5% based on our professional
judgement noting that it is also within the range
of commonly acceptable related thresholds.
• Our audit focused on where the directors made
subjective judgements; for example, significant
accounting estimates involving assumptions
and inherently uncertain future events.
Key Audit Matters
• Amongst other relevant topics, we
communicated
following key
the
audit matters to the Board Audit
Committee:
- Loan loss provisioning
- IT systems and controls
•
These matters are further described in
the Key audit matters section of our
report.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for the
current period. The key audit matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be key matters to be
communicated in our report. Further, commentary on the outcomes of the particular audit procedures is made in that context.
Key audit matter
Loan loss provisioning - Refer to Note 1M of the financial
statements for a description of the accounting policies
and to Note 33 for an analysis of credit risk
Due to the magnitude of the loans and advances balances and the
extent of management judgement inherent in the impairment
calculations, impairment of loans and advances is an area of
significance in the current year audit of the Bank and its subsidiaries.
In addition, the Bank and its subsidiaries, are required under IAS
8 Accounting policies, Accounting Estimates and Errors (IAS 8)
to disclose the impact of IFRS 9 financial instruments (IFRS 9)
adoption for accounting periods from 1 January 2018. This is a new
and complex accounting standard which has required considerable
judgement and interpretation in its implementation.
The key areas of judgement included:
The interpretation of requirements to determine impairment
under application of IFRS 9, which is reflected in the allowance
for losses on loans, advances and other receivables of
K633.567m (refer to Note 13 and Note 33)
How our audit addressed the key matter
The procedures we performed to support our audit conclusions, included:
•
•
•
•
Consideration of the appropriateness of accounting policies and
assessment of the loan impairment methodology applied, compared to
the requirements of IFRS 9. This included obtaining an understanding
and assessment of the reasonableness of the key outputs calculated
by the model, as well as key judgements and assumptions used by
management in implementation of the model.
Reviewing the design and operating effectiveness of key controls around
the credit origination processes, the credit monitoring processes and
the credit inspection unit’s customer loan files reviews.
Review of the impairment methodology to establish the critical fields
used in the computation of Stage 1 and Stage 2 provisions. On a sample
basis tested the critical fields identified to have an impact on the expected
credit loss provision by agreeing this back to source documentation.
For Stage 3 loans and advances, audit procedures were carried out
over the completeness of the credit watch list and delinquencies,
assumptions made in the valuation of collateral and recovery cash flows
and mathematical accuracy of the IFRS 9 provisioning model.
The identification of exposure for which there has been a
significant increase in credit risk.
•
Assumptions used in the expected credit loss model such
as valuation of collateral and assumptions made on future
values, financial condition of counterparties, expected future
cash flows and forward looking macroeconomic factors (eg
unemployment rates, GDP, energy index, non-energy index)
The need to apply additional model adjustments to reflect
current or future external factors that are not appropriately
captured by the expected credit loss model.
•
•
For loans and advances in Stage 1 and Stage 2, critically examining
the model methodology for consistency and appropriateness. This
included evaluation of the appropriateness of the estimates made on the
Probability of Default, Loss Given Default and Exposure at Default. This
also included assessing the appropriateness of probability-weighted
macroeconomic scenario and staging criteria.
For model adjustments, we considered the basis for and data used to
determine the adjustments. This included making our own independent
assessment of both the credit environment and the macro-environment
in which the Group operates.
For IFRS 9 related disclosures in the financial statements, we reviewed
the accuracy and completeness in line with BSP accounting policy and
IFRS 9 requirements.
•
•
•
•
92
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
Key audit matter
IT systems and controls
We focused on this area because the Group is heavily
dependent on complex IT systems for the processing and
recording of significant volumes of transactions.
In considering the complexity of the Group’s processes and
the design of the internal control environment, there are
some areas of the audit where we seek to place reliance on
automated controls, calculations or reports. The effective
operation of these areas is dependent on the Group’s IT
General Control (ITGC) environment. For example:
•
•
•
change management internal controls are important
because they help ensure that changes to applications
and data are authorised and made appropriately;
IT operations are important as they help ensure errors
in processing are resolved in a timely manner; and
user access controls are important to help ensure staff
have appropriate access to IT systems and that access
is monitored.
How our audit addressed the key matter
For significant financial statement balances we gained an understanding of the
business processes, key controls and IT systems used to generate and support
those balances. Where relevant to our planned audit approach, we assessed the
design and tested the operating effectiveness of the key controls which support
the continued integrity of the in-scope IT systems. This involved considering, and
where appropriate, testing the following ITGC domains::
•
•
•
•
governance controls used to monitor and enforce internal control consciousness
throughout the Group’s technology team;
program change management controls used to test and authorise changes to
the functionality of systems;
IT operations controls that help ensure errors in processing are resolved; and
user access security controls that help make sure that access to IT systems
are adequately restricted to appropriate personnel, periodically reviewed and
promptly removed when access is no longer required.
In performing our procedures over in-scope IT systems, where appropriate, we also
carried out direct tests of the operation of key programs to establish the accuracy
of calculations, the reliability of reports, and to assess the operation of automated
controls and technology-dependent manual controls across the financial year.
We also performed additional compensating control tests and/or substantive audit
procedures over key financial balances where required to support our audit.
Information other than the financial statements and auditor’s report
The directors are responsible for the other information. The other information comprises the Directors’ Report (but does not include the financial
statements and the auditors’ report thereon), which we obtained prior to the date of this auditor’s report, and the annual report, which is expected to
be made available after that date. Our opinion on the financial statements does not cover the other information and we do not, and will not, express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears
to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s
report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in
this regard.
When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate it to those charged
with governance.
Responsibilities of the directors for the financial statements
The directors are responsible, on behalf of the Bank for the preparation of financial statements that give a true and fair view in accordance with
International Financial Reporting Standards and other generally accepted accounting practice in Papua New Guinea and the Companies Act 1997 and
for such internal control as the directors determine is necessary to enable the preparation of financial statements are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Bank
or any of its subsidiaries, or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with the ISAs will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
93
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the
directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date
of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express
an opinion on the consolidated financial statements of the Group. We are responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence,
and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of
the financial statements for the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless
law or regulations preclude public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of
such communication.
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 confirm in relation to our audit
of the financial statements for the year ended 31 December 2018:
• We have obtained all the information and explanations that we have required;
• In our opinion, proper accounting records have been kept by the Bank as far as appears from an examination of those records.
Who we report to
This report is made solely to the Bank’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 Bank’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 Bank and the Bank’s shareholders, as a body, for our audit work, for this report
or for the opinions we have formed.
PricewaterhouseCoopers
Jonathan Seeto
Partner
Registered under the Accountants Act 1996
Port Moresby
28 February 2019
94
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 SHAREHOLDER
INFORMATION
SHAREHOLDER INFORMATION
The following is a summary of pertinent issues relating to shareholding in the Group. The Constitution of BSP may be inspected
during normal business at the Registered Office.
RIGHTS ATTACHING TO ORDINARY SHARES
Partly paid shares
The rights attaching to shares are set out in Bank of South Pacific Limited’s
Constitution and in certain circumstances, are regulated by the Companies
Act 1997, the POMSoX Listing Rules and general law. There is only one class
of share. All shares have equal rights. Other rights attached to ordinary
shares include:
The Directors may, subject to compliance with BSP’s constitution, the
Companies Act and the POMSoX Listing 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 meeting and notices
Each member is entitled to receive notice of, and to attend and vote at,
general meetings of BSP and to receive all notices, accounts and other
documents required to be sent to members under BSP’s constitution, the
Companies Act or the Listing Rules.
Voting rights
At a general meeting of shareholders, every holder of fully paid ordinary
shares present in person or by an attorney, representative 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 entitled, on a poll, to a
fraction of a vote equal to the proportion 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 meeting and tenders a vote in respect of the share,
the Company will count only the vote cast by the member whose name
appears first in BSP’s register of members.
Dividends
The Directors may from time to time determine dividends to be distributed
to members according to their rights and interests. The Directors may fix
the time for distribution and the methods of distribution. 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 participate in the dividend in the same proportion that the amount
for the time 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.
Liquidation
Subject to the terms of issue of shares, upon liquidation assets will be
distributed such that the amount distributed to a shareholder in respect
of each share is equal. If there are insufficient assets to repay the paid-up
capital, the amount distributed is to be proportional to the amount paid-
up.
Directors
Issues of further shares
BSP’s Constitution states that the minimum number of directors is three
and the maximum is ten.
The Directors may, on behalf of BSP, issue, grant options over, or otherwise
dispose of unissued shares to any person on the terms, with the rights,
and at the times that the Directors decide. However, the Directors must
act in accordance with the restrictions imposed by BSP’s constitution, the
POMSoX Listing Rules, the Companies Act and any rights for the time being
attached to the shares in any special class of those shares.
Variation of rights
Unless otherwise provided by BSP’s constitution or by the terms of issue
of a class of shares, the rights attached to the shares in any class of shares
may be varied or cancelled only with the written consent of the holders
of at least three-quarters of the issued shares of that class, or by special
resolution passed at a separate meeting of the holders of the issued shares
of the affected class.
Transfer of shares
Subject to BSP’s constitution, the Companies Act and the POMSoX Listing
Rules, ordinary shares are freely transferable.
The shares may be transferred by a proper transfer effected in accordance
with the POMSoX Business Rules, by any other method of transferring or
dealing with shares introduced by POMSoX and as otherwise permitted by
the Companies Act or by a written instrument of transfer in any usual form
or in any other form approved by either the Directors or POMSoX that is
permitted 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
permitted to do so under the POMSoX Listing Rules or the transfer would
be in contravention of the law. If the Directors decline to register a transfer,
BSP must give notice in accordance with the Companies Act and the
POMSoX Listing rules, give the party lodging the transfer written notice
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 Listing
Rules or by the POMSoX Business Rules.
96
Appointment of directors
Directors are elected by the shareholders in general meeting for a term of
three years. At each general meeting, one third of the number of directors
(or if that number is not a whole number, the next lowest whole number)
retire by rotation. The Board has the power to fill casual vacancies on the
Board, but a director so appointed must retire at the next annual meeting.
Powers of the Board
Except otherwise required by the Companies Act, any other law, the
POMSoX Listing Rules or BSP’s constitution, 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.
Share buy backs
Subject to the provisions of the Companies Act and the POMSoX Listing
Rules, BSP may buy back shares by itself on terms and at times determined
by the Directors.
Officers’ indemnities
BSP, to the extent permitted by law, indemnifies every officer 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 relation to legal costs incurred by these
persons in defending an action for a liability, or resisting or responding to
actions taken by a government agency or a liquidator.
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Twenty largest registered fully paid ordinary shareholders.
At the 31 December 2018, the twenty largest registered fully paid shareholders of the Company were:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Kumul Consolidated Holdings
Nambawan Super Ltd
Petroleum Resources Kutubu Ltd
National Superannuation Fund Ltd
Credit Corporation (PNG) Ltd
Motor Vehicles Insurance Ltd
PNG Sustainable Development Program Ltd
Fiji National Provident Fund Board
Teachers Savings & Loan Society Ltd
Comrade Trustee Services Ltd
IFC Capitalization (Equity) Fund LP
International Finance Corporation
Lamin Trust Fund
Capital Nominees Ltd
Credit Corporation (PNG) Ltd
16 Mineral Resources Ok Tedi No 2 Ltd
17
18
19
20
Solomon Islands National Provident Fund Board
Nominees Niugini Ltd
Catholic Diocese Of Kundiawa
Southern Highlands Holdings Ltd
Other shareholders
Distribution of Shareholding
At the 31 December 2018, the Company had 5,636 shareholders. The distribution of shareholdings is as follows:
Range (number)
Number of Shareholders
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100, 001 and above
Unmarketable Parcels:
4,677
588
96
179
96
5,636
SHAREHOLDER INFORMATION
Share Held
84,311,597
57,592,261
46,153,840
45,318,417
33,294,081
31,243,736
29,202,767
23,787,366
15,317,366
12,456,052
11,398,322
11,398,322
3,518,132
3,137,166
3,000,000
2,890,000
2,500,001
2,369,495
2,217,798
2,000,000
44,138,923
467,245,642
%
18.04%
12.33%
9.88%
9.70%
7.13%
6.69%
6.25%
5.09%
3.28%
2.67%
2.44%
2.44%
0.75%
0.67%
0.64%
0.62%
0.54%
0.51%
0.47%
0.43%
9.45%
100%
Number of Shares
1,200,505
1,195,377
701,391
6,752,184
457,396,185
467,245,642
As at 31 December 2018, the BSP Share Price was K10.26. There were 764 shareholders (0.1% of total shareholders) who held less than a marketable
parcel of BSP shares, being holdings of K1,000 or less in market value.
Interest in shares in the Bank
Directors hold the following shares in the Bank:
Director
R Fleming
Shares Held
93,000
%
0.00
Registered Office
Bank of South Pacific Ltd
PO Box 78,
PORT MORESBY
National Capital District, PAPUA NEW GUINEA
Telephone: +675 322 9700
Home Exchange for BSP Shares
Port Moresby Stock Exchange Ltd (POMSOX)
PO Box 1531
PORT MORESBY
National Capital District, PAPUA NEW GUINEA
Telephone: +675 320 1980
Website
Share Registry
PNG Registries Ltd www.bsp.com.pg
PO Box 1265,
PORT MORESBY
National Capital District, PAPUA NEW GUINEA
Telephone: +675 321 6377
Australian Registered Office
Level 26
181 William Street, Melbourne
VIC 3000
Home Exchange for BSP Convertible Notes
South Pacific Stock Exchange
GPO Box 11689
SUVA, FIJI
Telephone: +679 330 4130
Australian Share Registry
Link Market Services Ltd
Level 12, 680 George Street, Sydney
NSW 2000
APRA Disclaimer:
BSP is not authorised under the Banking Act 1959 (Commonwealth of Australia) and is not supervised by the Australian Prudential Regulation Authority
(APRA). BSP’s products are not covered by the depositor protection provisions in section 13A of the Banking Act 1959 and will not be covered by the
financial claims scheme under Division 2AA of the Banking Act 1959
97
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
DIRECTORS’ INFORMATION
Name
Nature of Interest
Sir K. Constantinou, OBE
Director
Shareholder
Patron
Member
R. Fleming, CSM, MBA, MMGT
Director
Bank of South Pacific Ltd, BSP Capital Ltd, BSP Finance Ltd, Bank South Pacific (Tonga)
Ltd, Bank South Pacific (Samoa) Ltd, Bank South Pacific (Vanuatu) Ltd, Airways Hotel
& Apartment Ltd, Lamana Hotel Ltd, Lamana Development Ltd, Heritage Park Hotel
Ltd, Gazelle International Hotel Ltd, Oil Search Ltd, Alotau International Hotel Ltd,
Coastwatchers Court Ltd, Waigani Assets Ltd, Southern Seas Investments Ltd, Texas
Chicken South Pacific Ltd, Loloata Island Resort, OPH Ltd, Rangeview Heights Ltd in
Papua New Guinea, Taumeasina Island Resort in Samoa, Good Taste Company in New
Zealand, K G Property Ltd, Air Niugini and Anglicare Foundation
Airways Hotel & Apartment Ltd, Lamana Hotel Ltd, Lamana Development Ltd, Texas
Chicken South Pacific Ltd and K G Property Ltd
Burnet Institute and Kokoda Track Foundation
Australian Institute of Company Directors, PNG Institute of Directors, Anglicare
Foundation
Bank of South Pacific Ltd, BSP Capital Ltd, BSP Convertible Notes Ltd, BSP PNG
Holding Ltd, BSP Life (Fiji) Ltd, BSP Saleco 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, Bank South Pacific (Tonga) Ltd, Bank South
Pacific (Samoa) Ltd, Bank South Pacific (Vanuatu) Ltd, 3 Kundu Pte Ltd, BSP Finance
(Solomon) Ltd, BSP Life PNG Ltd, BSP Finance (Cambodia) Plc
Shareholder
Bank of South Pacific Ltd, BSP Saleco Ltd
Member/Trustee
Australian Institute of Company Directors, PNG Institute of Directors, Anglicare
Foundation
A. Sam, BComm, CPA, MAICD,
GAICD
Director
Bank of South Pacific Ltd, Sam Kiak Tubangliu Certified Practising Accountants, Silver
Dawn Holdings Ltd
Shareholder
Sam Kiak Tubangliu Certified Practising Accountants, Silver Dawn Holdings Ltd
Member/Trustee
CPA PNG, PNG Institute of Directors, Australian Institute of Company Directors
S. Davis, LLB
Robert Bradshaw, LLB
Director
Member
Director
Member
Bank of South Pacific Ltd, Next DC Ltd, PayPal Australia Ltd, NextDC Ltd, Asia Society
of Australia, Australia India Business Council
Australian Institute of Company Directors, Avondale Golf Club Ltd
Bank of South Pacific Ltd, Kumul Agriculture Ltd
Papua New Guinea Law Society
98
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Name
Nature of Interest
G. Robb, BA, MBA, OAM, MAICD,
GAICD
Director
Bank of South Pacific Ltd, BSP Capital Ltd, Bank of South Pacific Tonga Ltd
Member/Graduate
Australian Institute of Company Directors
F. Talao, LLB, LLM, MPHIL, MAICD Director
E. B. Gangloff, CPA, MAICD, MIIA,
PNGID
Member
Director
Member
A. Mano, BEcon, MSc.
Director
Faamausili Dr. M. Lua’iufi, BA,
MSc, PhD
Shareholder
Employee
Director
Shareholder
Member
Bank of South Pacific Ltd, Director Partnership Pacifica, Chayil Investment ltd,
Human Rights PNG
Papua New Guinea Law Society, Australian Institute of Company Directors
Bank of South Pacific Ltd, Gangloff Consulting Ltd, New Britain Palm Oil Ltd,
Sir Theophilus Constantinou Foundation, BSP Finance (Fiji) Ltd, Pacific Training
Consortium Ltd, Highlands Pacific Ltd
Institute of National Affairs (President), MSME Council Inc. (Vice President),
Australian Institute of Company Directors, Papua New Guinea Institute of Directors
(Founding member), CPA PNG, Institute of Internal Auditors, School of Business and
Public Administration, University of Papua New Guinea (Adjunct Professor).
Bank of South Pacific Ltd, Mineral Resources Development Company Ltd, Pearl
Resort (Fiji) Ltd, Speedy Hero Ltd, Insurance Pacific Ltd, Civpac Ltd, Handy Group
Ltd, SMA Investments Ltd, Hevi Lift Group Ltd, PNG Air 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 Pacific (Samoa) Ltd, Star Mountain Plaza,
Taumeasima Island Resort in Samoa, Davara Estate, Bogasi Investments Ltd, Terra
Resources Ltd
SMA Investments Ltd, INSPAC Ltd
Mineral Resources Development Company Ltd
Bank of South Pacific Ltd, Paradise Consulting, National University of Samoa
Paradise Consulting
Executive Committee of the National University of Samoa, Samoa Institute of
Directors, British Institute of Consulting, Technical Advisor to the newly establsihed
Samoa Human Resources Institute (November 2018), Australian Institute of Company
Directors
99
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 MANAGEMENT TEAMS
& DIRECTORIES
MANAGEMENT TEAMS
SENIOR MANAGEMENT
Robin Fleming, CSM
Group Chief Executive Officer
Robin Fleming was appointed CEO of Bank of South Pacific Ltd in April 2013. Before his appointment as CEO, he
had been Deputy CEO and Chief Risk Officer since 2009. Prior to that, Mr Fleming held senior executive roles
as Chief Risk Officer, General Manager Corporate & International, and Head of Risk Management with BSP.
Prior to the merger of BSP and PNGBC, Mr Fleming held senior management roles with PNGBC. He has worked
in PNG for over 35 years and holds an MBA and a Master of Management from Charles Sturt University. Mr
Fleming was made a Companion of the Star of Melanesia (CSM) in 2015 by the PNG Government for services
to banking and the community.
Roberto Loggia
Group Chief Operating Officer
Roberto Loggia joined BSP in April 2011 after having been CEO of State Bank, Mongolia in its initial stages of
development wherein the sound assets of two failed institutions were consolidated into a new viable state
sponsored bank with the support of EBRD, London. After having obtained his Bachelor of Commerce degree in
Finance from McGill University, Montreal and initiation into banking at Toronto Dominion Bank, he eventually
became a career banker with more than thirty years’ experience working mostly throughout Asia but also
in emerging markets in Central Europe, South America and Africa. In terms of scope of responsibility, most
of his assignments have been as Chief Operating Officer responsible for middle and back office functions
supporting businesses in Retail Banking, Corporate & Investment Banking and Private Banking. Mr Loggia has
also participated as a key Manager in Greenfield Banks in Japan, Indonesia, Laos and Angola. Lastly, he has held
senior line management responsibility within Retail Banking in Nigeria as well as consulting assignments within
Retail Banking in China and Risk Management in Thailand.
Eddie Ruha
Group Chief Financial Officer
Eddie Ruha was appointed to Group Chief Financial Officer on the 3rd April 2017, after the resignation of Mr
Johnson Kalo. Prior to that Mr Ruha joined BSP on the 1st of November 2012, as the Chief Financial Officer
– PNG. Previously he worked for Steamships Trading Company here in PNG for 22 years, commencing there
in 1990, working in the Steamships Merchandising Division for eight years, before transferring to Head Office
as Group Systems Accountant and then Group Accountant, General Manager Finance and then from 2008
to 2012 as Finance Director and Company Secretary. In New Zealand Mr Ruha initially worked for KPMG
Auckland office as an Auditor. Mr Ruha is a commerce graduate from Auckland University in New Zealand
(1984) and has a Master of Business Administration from Charles Sturt University (2000) and is a member of
CPA Papua New Guinea and a member of the Chartered Accountants Australia and New Zealand as well as a
member of the Australia Institute of Company Directors.
Mike Hallinan
Group Chief Risk Officer
Mike Hallinan, was appointed Group Chief Risk Officer, following Haroon Ali’s move to Fiji as Country
Head in 2018. Mr Hallinan, commenced employment with BSP in 2013, as Chief Credit Officer. His
professional career expands over 40 years in Banking and Finance holding various senior positions in Risk
Management and Senior Relationship Executive roles with Commonwealth Bank of Australia, specifically
managing corporate and institutional relationships including government departments, both domestically
and internationally. Recent experience prior to joining BSP included the financial industry group and
infrastructure project financing. Mike is familiar with PNG having previously worked for the former Papua
New Guinea Banking Corporation holding the position of Executive Manager Lending Division. Mike is a
qualified CPA and is a Fellow of the Australian Bankers Institute.
Paul Thornton
Group General Manager Retail Banking
Paul Thornton was appointed General Manager Retail in August 2013 and brings to the position 44
years of retail banking experience, 36 years of which have been in Papua New Guinea. Mr Thornton was
previously the Executive Manager Strategic Planning with the PNG Banking Corporation and was the
founding Managing Director of PNG Microfinance Limited. Since returning to BSP in 2010, he has held
the positions of Head of BSP Rural, Deputy General Manager Retail and General Manager Network before
being appointed to this current position.
102
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 MANAGEMENT TEAMS
Peter Beswick
Group General Manager Corporate Banking
Peter Beswick was appointed General Manager of BSP Corporate Banking in June 2011. He has over 25
years Banking and Finance experience, covering Australia and South East Asia with Commonwealth Bank
of Australia, National Australia Bank and Bank of New Zealand; holding senior executive positions in Risk
Management and Business Development. Mr Beswick’s most recent appointment has been CEO of a national
wholesale, import and retail business in Australia. He has extensive experience in the Finance, Government,
Retail, Wholesale, Telecommunications and Property sectors, with extensive knowledge in foreign exchange,
risk management and governance. Mr Beswick qualified as a Chartered Accountant with PWC and most
recently completed an MBA with Macquarie University in Australia.
Hari Rabura
General Manager Human Resources
Hari Rabura was appointed General Manager Human Resource in April 2016. She first joined BSP as a
graduate trainee in 2001 and worked in various positions within HR in BSP and various private firms. Ms
Rabura is the first female employee to reach executive management level as a General Manager in one
of the key Strategic Business Unit (SBU) within the organisation. She is experienced in implementing and
delivering HR strategies, policies, and services that create, support and sustain a high performance culture
in BSP. As a former member of the Leadership and Management Development Program (LMDP) in BSP, she
has undergone General Management training in INSEAD Business School in France and Melbourne Business
School in Australia.
Aho Baliki, OBE
General Manager Paramount Banking
Aho Baliki is a career Banker having joined the Commonwealth Banking Corporation on 11th February 1974.
Since joining the bank, he has progressed through the banking hierarchy to the position of Chief Executive
Officer of the PNG Banking Corporation (PNGBC) in 1999. He was further appointed as General Manager
Human Resources in 2000 when PNGBC merged with Bank of South Pacific Ltd (BSP). Mr Baliki currently
holds the position of General Manager Paramount Banking since his appointment in 2002.
Rohan George
General Manager Treasury
Rohan George was appointed General Manager Treasury in February 2015. Mr George has extensive
knowledge in developed and emerging financial markets. His experience spans over 30 years, covering fixed
income, foreign exchange, commodities and structured derivatives markets. He is passionate about financial
markets, managing market risk, liquidity risk and providing value add solutions for clients. Prior to joining BSP,
Mr George worked at ANZ as Head of Global Markets, Cambodia & Laos (5 years), at Westpac as Treasurer
PNG & Pins (8 years), and at BNP Paribas Investment Management in Sydney, as Head of Fixed Income. Mr
George holds a Master of Applied Finance degree from Macquarie University and is accredited by both the
Australian Financial Markets Association and the Sydney Futures Exchange.
Christophe Michaud
General Manager and Director BSP Finance Ltd
Christophe Michaud was appointed General Manager and Director of BSP Finance Ltd in May 2015. Prior
to this appointment, he spent 4 years with BSP in corporate banking as Senior Relationship Manager then
Deputy General Manager. Prior to joining BSP, Mr Michaud held various positions in the banking industry in
corporate banking, project finance, private banking with BNPParibas, Banque Indosuez and Crédit Agricole
in France, India, Pakistan, Turkey, Indonesia, Singapore. He brings with him more than 35 years of banking
experience. Christophe holds a Master of Business Administration from Neoma Business School in France.
Daniel Faunt
General Manager Offshore Branches
Mr Faunt was appointed to General Manager Offshore Branches in 2018 with responsibility over banking
operations in Fiji, Solomon Islands, Tonga, Samoa, Vanuatu and the Cook Islands. Mr Faunt has 20 years of
banking experience in PNG, Australia and the Pacific and has held senior management roles in Corporate and
Commercial Banking, Retail Banking and Operations. Mr Faunt holds a Masters of Business Administration
in Economics from Deakin University and Bachelor of Business in Banking from the Queensland University
of Technology.
103
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 104
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 MANAGEMENT TEAMS
COOK ISLANDS
FIJI
SAMOA
106
Standing (L - R):
Achaal Narayan – Manager Digital
Gabe Raymond – Finance Manager
Tutu Inamata – Business Manager
Henry Napa – Manager of Operations
Seated (L - R):
Grace Tangata – Operational Risk and
Compliance Manager
Chris Doran – Head of Business Banking
David Street – Country Manager
Tokoa Harmon – Branch Manager
Standing (L-R):
Ravindra Singh - GM Retail Bank
Cecil Browne - GM Corporate & International
Alvina Ali - GM Legal
William Wakeham - Chief Operating Officer
Sunil Rohit - Senior Credit Officer
Rajeshwar Singh - Chief Financial Officer
Omid Saberi - Chief Information Officer
Seated (L - R):
Kevin McCarthy - GM Operations
Haroon Ali - Country Manager
Howard Politini - GM HR
Standing (L - R):
Maiava Iaeli Tovia-Leota - Business Manager
Shirley Greed - Head of Retail Banking
Taitu’uga Maryann Lameko-Vaai - Country Manager
Jennifer Fruean - Head of Finance
Peti Leiataua - Manager Operational Risk and
Compliance
Seated (L - R):
Epeli Racule - Operations Manager
Bharat Chovan - Head of Financial Markets
Edward Yee - Head of Business Banking
Rodney Greed - Manager Projects and Premises
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 SOLOMON ISLANDS
TONGA
VANUATU
MANAGEMENT TEAMS
Standing (L-R)
Alphonse Taoti – Manager Retail Banking Services
Winterford Maehau – Manager Information System
Dennis Suia – Manager Retail Banking Operations
Joan Ramo – Manager International Operations
Sharneet Singh – Financial Controller
Giddings Giqo – Manager Operations & International
Business
Sitting(L-R)
Lynette Taoti – Manager Credit Administration
David Anderson – Country Manager
Christopher Robertson – Head of Relationship
Banking
Freda Fa’aitoa – Manager Human Resources
Standing (L - R):
Emilio Tapueluelu - Operations Manager
Emele Hia - Senior Relationship Manager
Salesi Fineanganofo - Business Manager
Seated (L - R):
Melaia Tu’ipulotu - Acting Bank Manager- Large
Daniel Henson - Country Manager
Mele’ana Fifita - Manager Channels
Viliami Vailea - Finance Manager
Standing (L - R):
Peter Dinsmore - Mgr Finance
Carol Veremaito - Business Mgr
Nik Regenvanu - Country Manager
Moana Korikalo - Head of Retail and Marketing
Teresa Jordan - Manager Operations
Charles Sileye - Head of Business Banking
107
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
MANAGEMENT TEAMS
BSP CAPITAL LTD
BSP FINANCE - GROUP
BSP FINANCE - PAPUA NEW GUINEA
BSP FINANCE - FIJI
BSP FINANCE - CAMBODIA
108
Standing (L - R):
Willie Konga – Senior Manager (Funds Management)
Gheno Minia – General Manager
Salaniet Mathew – Manager (Settlements & Nominees)
Theresa Kalivakoyo- Business Controller
Standing (L - R):
Pochon Lili - Financial Controller
Sharon Andoiye - Manager Operational Risk &
Compliance
Bernadette Name’a - Business Analyst
Anna Puri - Credit Manager
Christophe Michaud - General Manager (not in
photo)
Standing (L - R):
Natasha Lagani - Manager Operations &
Finance
Brett Tayler - Country Manager
Imelda Samba - Head of Lending Sales
Roger Kauk - Team Leader Operations
Standing (L - R):
Sudeshwar Ram (Area Manager – East),
Vimal Raj (Senior Lending Officer – SME/Hire
Purchase), Sanjeet Narsey (Finance Manager)
Shainesh Vikash Lal (Area Manager – West)
Seated (L-R):
Shelvina Sharon Lata (Accountant),
Krishna Raju (General Manager)
Animul Sheryn Khan (Supervisor Lending
Support
Centre:
Etienne Kettenmeye (Country Manager),
with Management and staff of BSP Finance
Cambodia
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 BSP LIFE - PNG
BSP LIFE - FIJI
OVERSEAS DIRECTORY
Cambodia
Country Manager
Etienne Kettenmeye
855 (0) 2388 52064
Cook Islands
Country Manager
Head of Business Banking
Rarotonga Branch
Aitutaki
Fiji
David Street
Chris Doran
Tokoa Harmon
Rosa Henry
682 22014
682 22014
682 22014
682 22014
Haroon Ali
Manjila Goundar
Mohammed Arif
Shailendra Roy
Ravikashni Prakash
Shalit Kumar
Country Manager
Damodar City Branch
Thomson St Branch
Nausori Branch
Pacific Harbour Branch(OIC)
Pacific House Sales & Bus.Centre
Samabula Sales & Bus. Centre(OIC) Pio Vatanitawake
Suva Central Branch
Ba Branch
Westfield Branch
Nadi Branch
Namaka Branch
Rakiraki Branch (OIC)
Sigatoka Branch
Tavua Branch (OIC)
Labasa Branch
Savusavu Branch (OIC)
Taveuni Branch
Mereani Peters
Anupa Kumar
Madhur Kumar
Devendran Pillay
Ann Pesamino
Ronica Prakash
Reginald Kumar
Razia Tahir
Eka Takayawa
Vineeta Prasad
Marica Mara
679 3214454
679 3342333
679 3314400
679 3478499
679 3452030
679 3314400
679 3387999
679 3314400
679 6674599
679 6661769
679 6700988
679 6627320
679 6694200
679 6500900
679 6681507
679 8811888
679 8850199
679 8880433
MANAGEMENT TEAMS & OVERSEAS BRANCH DIRECTORY
Standing (L - R):
Joel Fareapo Koivi (Mr)- Group Policy Administrator
Jennifer Manimua (Miss)- Administration
Accountant
Nilson Singh (Mr)- Acting Country Manager
Mathew Hasu (Mr)- Business Development Manager
Standing (L - R):
Munendra Naidu - Chief Financial Officer
Atelina Muavono - Chief Operations Officer
Michael Nacola - General Manager Distribution
& Marketing
Pramesh Sharma - General Manager Investments
Malakai Naiyaga - Managing Director
Samoa
Country Manager
Retail Head
Savaii Branch
Vaitele Branch
Solomon Islands
Country Manager
Auki Branch
Gizo Branch
Heritage Park Branch
Honiara Central
Munda Branch
Noro Branch
Point Cruz Branch
Ranadi Branch
Tonga
Country Manager
Nuku’alofa Branch
Vava’u Branch
Ha’apai Sub Branch
‘Eua Sub Branch
Vanuatu
Maryanne Lameko - Vaai 685 66115
685 66170
Shirley Greed
685 51208
Leilani Kelemete
685 23005
Amelia Iakopo
David Anderson
Lency Saeni
Clotilda Londeka
Joy Vave
Jeremy Bosukuru
Joseph Rabaua
Richard Bero
Fred Osifelo
Tricia Tura
677 21874
677 40484
677 60539
677 21814
677 21222
677 62177
677 61222
677 21874
677 39403
Daniel Henson
Melaia Tu’ipulotu
Sosefina Tangitau
Mo’unga Akoteu
Tokilupe Toe’api
676 20807
676 20879
676 71268
676 60933
676 50145
Country Manager
Head of Retail & Marketing
Santo
Port Vila
Tanna Branch
Nik Regenvanu
Moana Korikalo
Edwige Wensi
Danica Rapouel
Dolores Charlie
678 5580001
678 5580009
678 5580034
678 5580016
678 5580041
109
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
PAPUA NEW GUINEA BRANCH MANAGERS
Cliff Yoka
Aitape
Rose Paula Seeto
Arawa
Martin Gilo
Alotau
Ruby Patu
Boroko
Dora Raphael
Bialla
Nelson Kerua
BSP First HC
Julie Warren
Buka
Roslyne P. Kanini
Bulolo
Antonia Dru
Gordons
Reuben Attai
Daru
Livikonimo Koki
Goroka
Donna Gavu
Habour City
Marco Hamen
Kainantu
Mathias Manawo
Kavieng
Betty Posangat
Kimbe
Ivy David
Kiunga
Joe Makinta
Kokopo
Rita Singut
Kundiawa
Bevilon Homuo
Lae Top Town
Robinson Panako
Lae Commercial
Josephine Komuru
Lae Market
Johnson Tetaga
Lihir
Ruth Kagl
Lorengau
Barry Namongo
Madang
Philip Solala
Mendi
Meck Kaum
Moro
David Ila
Moro
Theresa Pilamp
Mt Hagen
Susie Yapen
Motukea
Diana Guria
Port Moresby
Eileen Goviro
Popondetta
Mary Koi
Porgera
Kalat Tiriman
Rabaul
Dianne Rali
Tabubil
Samuel Okti
Tari
Delilah Kanit
Vanimo
Rawalo Rawalo
Vision City
Rova Olemau
BSP First Gordons
Thomas Tembil
Wabag
Alex Kuna
Waigani B/Centre
Madeleine Leka
Waigani Drive
Gabriel Ak
Wewak
Tony Waningu
SME - Port Moresby
Richard La’a
SME - Lae
Reuben Elizah
Highlands Area
Manager
Dennis Lamus
Momase Area
Manager
Natasha Sirimai
NCD Area Manager
Jeffrey Singer
NGI Area Manager
Billy Veveloga
Southern Area
Manager
110
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Aitape
Alotau
Arawa
Bialla
Boroko
Branch
Premium
Buka
Branch
Premium
Bulolo
Daru
Goroka
Gordons
BSP First
Premium
Harbour City
Branch
Premium
BSP First
Kainantu
Kavieng
Kimbe
Kiunga
Kokopo
Branch
Premium
457 2042
Cliff Yoka
Martin Gilo
641 1284
Rosemary Paula Seeto 276 9244
983 1095
Dora Raphael
Ruby Patu
Sheila John
303 4320
303 4354
Julie Warren
Julie Warren
Roselyn p. Kanini
Ruben Attai
Livikonimo Koki
973 9042
973 9042
474 5331
645 9416
532 1633
Rova Olemau
Antonia Dru
302 5245
302 5202
Donna Gavu
Merai Nureo
Nelson Kerua
Marco Hamen
Mathias Manowo
Betty Posangat
Ivy David
305 6110
3056105
305 7935
537 1251
9842082
983 5166
649 1313
Joe Makinta
Jennifer Tiolam
982 9088
982 9068
Kundiawa
Rita Singut
535 1025
Lae
Top Town
Main Market
Commercial
BSP First
Lihir
Lorengau
Madang
Branch
Premium
Bevilon Homuo
Josephine Komoru
Robinson Panako
Elizabeth Gavul
Johnson Tetaga
Ruth Kagl
473 9876
473 9609
472 9088
478 4949
986 4062
970 9244
Barry Namongo
Ruth Makel
422 2477
422 2621
Mendi
Philip Solala
549 1070
SUB BRANCH DIRECTORY
AIYURA
BANZ
BUIN
CHUAVE
DAULO
Gomah Benson
Kessy Elly
Melchior Tania
Koiya Kupa
7230 8313
7100 9078
7106 3610
7197 6001
Merolyn Sirifave
7100 6763
GUSAP
HENGANOFI
HIGATURU
HOSKINS
IALIBU
KABWUM
KAMTAI
KEREMA
KEREVAT
KINIM
KIKORI
KOMO
KONOS
Lee Sinemaue
7091 1396
Emos James
7100 7859
Stephanie Orovo
7275 1365
Ruddy Samson
Philemon Kumi
Inna Buneng
Robert Kom
Aisi Aua
Kilala Kindau
7031 2627
7041 1624
7346 1426
7243 4695
7100 2889
7190 8231
7100 9077
Malapun Bannick
7100 7861
Leah Kimave
Mark Tom
7163 0597
7362 0760
KEROWAGI
Leah Taia
PAPUA NEW GUINEA BRANCH DIRECTORY
Moro
Meck Kaum
David Ila
276 1566
276 1569
Motukea
Susie Yapen
3217699
Mt Hagen
Branch
Premium
Popondetta
Porgera
Port Moresby
Branch
Premium
BSP First
Rabaul
Tabubil
Tari
Vanimo
SME
Port Moresby
Lae
Goroka
Vision City
Branch
Premium
Theresa Pilamp
Beverly Elizah
Eileen Goviro
Mary Koi
Diana Guria
Bau Kiso
Jessie Toran
Kalat Tiriman
Dianne Rali
Samuel Okti
Delilah Kanit
Tony Waningu
Richard La’a
Samuel Mulina
542 1877
542 1877
629 7443
547 6900
305 7104
305 6189
305 7724
982 1744
649 9179
276 1651
457 1025
305 6400
479 5676
532 1006
Rawalo Rawalo
Damaris Toran
305 7135
300 9103
Wabag
Thomas Tembil
547 1237
Waigani Banking Centre
Branch
Premium
Alex Kuna
Lorraine Siaoa
Waigani Drive
Wewak
Madeleine Leka
Gabriel Ak
REGIONAL AREA MANAGERS
Highlands Region
Momase Region
NGI Region
NCD Region
Southern Region
Reuben Elijah
Dennis Lamus
Jeffrey Singer
Natasha Sirimai
Billy Veveloga
305 6102
300 9645
302 5301
456 2344
542 2002
478 4998
982 9285
305 7195
305 7886
LABA
Heni Nao
LAKURUMAU
Lorraine Koma
LOUSIA
MAPRIK
MINJ
Lorna Solomon
Christian Tatu
Kui Tai
7197 6008
7197 6005
7031 2617
7168 7815
7100 9076
7100 2488
NAMATANAI
Mathew Tabakas
7197 6007
NAVO
NINGERUM
OKAPA
PADIPADI
Hennah Brunim
Todin Kasi
Arafat Tovari
Lelly Mick
PALMALMAL
Freda Nablup
PANGIA
TAMBUL
Karen James
Joseph Paul
TELEFOMIN
Jobartan Bickie
WAKUNAI
WALIUM
Melvin Kusa
Brenda Igusam
WAPENAMANDA
Feta Isin
YANGORU
Brendon Iromo
7090 4272
7916 5583
7055 0955
7090 4463
7323 9181
7197 6003
7100 7863
7255 8421
7100 7856
7031 2127
7100 7862
7127 0000
7185 5768
111
GEMBOGL
William Koima
7313 4177
MUTZING
Gordon Robert
KUPIANO
Andrew Baine Jnr
7288 4140
Clarinda Tangabe
7197 6006
YONKI
Usik Asino
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
CORPORATE SOCIAL
RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY
SPONSORSHIPS AND DONATIONS
BSP School Kriket Program Launch 2018, Wardstrip Primary School.
BSP takes pride in supporting professional groups, organisations, and worthy causes that are
important to our customers, employees and people throughout PNG and the Pacific. BSP has
built partnerships with various organising committees, events and charities who champion,
cultural unity, professional development, environment sustainability, education, sports, health
and well being. In 2018, BSP Corporate Social Responsibility (CSR) contribution was over K8
million including sponsorships and donations as a group.
Quick Facts | Sponsorships and Donations in PNG
Corporate Social Responsibility
Donations
Sponsorships
K6.5
Million, total
CSR
K2.7
Million in
Donations
K2.7
Million in
Sponsorships
At BSP we respect, value and support the communities in which we operate in. Some of the organisations and
activities we supported in 2018 in PNG included:
CHARITY AND NGO
• Buk Bilong Pikinini
• Burnett Institute
• Kokoda Track Foundation
• Operation Open Heart Program
• St. John Ambulance
SPORT AND CULTURE
• Brand Ambassadors
• Cricket PNG
• Game Fishing Club
• Milne Bay Tourism Bureau
• Morobe Agriculture Show
• Morobe Golf Open
• National Mask & Warwagira Festival
• PNG Darts Federation
• PNG Golf Open and Junior Pro-Am
114
• PNG Olympic Committee PM’s Golf
Conference
Challenge
• Business Advantage PNG Investment
• PNG Snooker and Billiards Nationals
• PNG Swimming Inc.
• Rabaul Frangipani Festival
• Ramu Agri- Golf Tournament
• Sepik River Crocodile and Arts Festival
CONFERENCES AND EVENTS
• A15th PNG Mining & Petroleum
Conference
• 2018 National Planning Consultative
Summit
• ABAC Secretariate of PNG - CEO’s
Summit
• Business & Professional Women Port
Moresby
• Business Advantage PNG Investment
Conference
• Business Council of PNG - Speakers
Investment Summit
Institute of Internal Auditors Conference
• CPA PNG Annual Conferences
• Hausples Real Estate Show
•
• Law and Order Summit
• PNG Digital Commerce Assocaition
• PNG Human Resource Institute
• PNG Tourism Industry Association
• PNG Trade and Investment Summit
• UPNG EMBA Pinnacle Program
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018
Our contributions to the Community across the Pacific.
Through our respected and valuable partnerships, we are able to reach more communities, more children,
enhancing the lives of many, and contributing positively to the community.
CORPORATE SOCIAL RESPONSIBILITY
Emergency relief - Samoa
GO Green - PNG
Scholarship awards - Samoa
Pinktober Donation - Tonga
Tourism Industry Support - PNG
Va’a Challenge - Tonga
Scholarship Grant - Vanuatu
BSP Fiji donates to Sigatoa Community
Cook Island Basketball Team
Supporting
Worthy Causes
General Manager - Digital Banking, Nuni Kulu
presenting the cheque to Operation Open Heart Program Coordinator,
Kathy Johnston (second left)
115
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 CORPORATE SOCIAL RESPONSIBILITY
Core Value of
Community
As part of our community, social responsibility,
all staff are encouraged to lend a helping hand
to deliver a community project. Community
is one of the Bank’s core values in which we
respect, value and support the communities in
which we operate in.
Installation of Solar Lights and Renovation for Kwikila Secondary School
Project by Finance & Planning, Retail SBU and BSP First
Community Projects delivered through Branches in
Papua New Guinea
Aitape/ Wewak
Relief Assistance to the people of Kadovar & Biem
Alotau
James Chalmers Memorial High School - Installation of solar lights
Arawa
Koromira Technical High School - Installation of solar lights
Bialla
Bialla Secondary School - Installation of solar lights
Boroko
Konepoti Primary School - Installation of solar lights
BSP Haus
Redscar High Schoo l- Installation of solar lights
Buka
Burunotui Secondary School - Installation of solar lights
Bulolo
Buang High School - Installation of solar lights
Daru
Daru Secondary School - Installation of solar lights
Gordons
Kupiano Secondary School - Installation of solar lights
Goroka
Rintebe Lutheran High School - Installation of solar lights
Kainantu
Aiyura National High School - Installation of solar lights
Kavieng
Utu Secondary School - Installation of solar lights
Kimbe
Cenaka High School - Installation of solar lights
Kiunga
Aiambak High School - Installation of solar lights
Kokopo
Utmei Secondary School - Installation of solar lights
Quick Facts | Community Projects in PNG
K8.96
Million
since 2009
K1.16
Million
in 2018
100%
100%
Funded
by BSP
381 Community Projects
delivered since 2009
45 Project Delivered in
2018
In PNG and across the
Pacific
116
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 CORPORATE SOCIAL RESPONSIBILITY
Kimbe Branch
Wewak & Aitape Branch
Kundiawa Branch
Community Projects delivered through Branches in
Papua New Guinea
Kundiawa
Neragaima High School - Installation of solar lights
Lae Commercial
Gabensis Adventist Primary School - Installation of solar lights
Lae Market
Nawae Lutheran High School - Installation of solar lights
Lae Top Town
Salamaua High School - Installation of solar lights
Lihir
Palie Vocational School - Installation of solar lights
Lorengau
Papitalai Secondary School - Installation of solar lights
Madang
Transgogol High School - Installation of solar lights
Mendi
Mendi General Hospital - Purchase of medical equipment
Moro
Relief assistance for Yalanda Village
Mt Hagen
Kombolopa Secondary School - Installation of solar lights
Port Moresby
New Erima Primary School - Installation of solar lights
Popondetta
Martyrs High School - Installation of solar lights
Porgera
St Joseph Kasap Primary - Installation of solar lights
Rabaul
Boisen Secondary School - Installation of solar lights
Tabubil
Okma & Sisimakam Aid Post - Installation of solar lights
Tari
Distribution of solar generators for Halogali and Pureni Health Centre
Vanimo
Holy Trinity Baro Primary School - Installation of solar lights
Wabag
Pilakambi High School - Installation of solar lights
Waigani BC
Mainohana Secondary School - Installation of solar lights
Waigani Dr
Kupiano Elementary School - Installation of solar lights
Buka Branch
Rabaul Branch
Daru Branch
Lae Corporate & Lae BSP Finance
Port Moresby Branch
Waigani Drive
57
Community
Projects in 2018
10 | Strategic Business Units
35 | PNG Branches
12 | Pacific Island Countries
117
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 CORPORATE SOCIAL RESPONSIBILITY
BSP Fiji staff working with contractors to install solar lights
Nailuva District School
12
K187, 600 worth of Communty Projects
A total of 12 completed community projects handed over to communities across the Pacific Island
Countries in which BSP operates in.
6 Projects in Fiji
Installation of Solar
Lights
4 Projects in Solomon
Islands
1 Project in Tonga
Auki Branch
Donated Water Tank to Schools
Heritage Park Branch
Donated Water Tanks to Schools
Gizo Branch
Supported Tennis Competition
Ranadi, Point Cruz, Honiara
Central Branch - Built Rove Bus Stop
1 Project in Cook
Islands
Rakiraki Branch
Nailuva District School
Labasa Branch
Seaqaqa Distrct School
Savusavu Branch
Tunuloa Catholic School
Sigatoka Branch
Natutale District School
Microfinance
Yasawa High School
Westfield Branch
Somolevu Catholic School
118
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Delivering Financial Literacy
Financial Literacy Training and Banking Education is an important part of our contribution
to the community. Whether its teaching people how to manage money or helping them
to use the right banking product and service, we have reached some of the most remote
communities to deliver Financial Literacy Training.
CORPORATE SOCIAL RESPONSIBILITY
24,123
Individuals participated in
Financial Literacy. 48% are
women.
137
We have 137 qualified
Financial Literacy Trainers in
branches in PNG.
126,953
We have delivered financial
literacy traning to over
120,000 people since 2014.
Reaching Customers
More informed citizens
Education and Training
Financial inclusion
FLT Certification
Reaching the rural areas
BANKING EDUCATION AND FINANCIAL LITERACY
Financial Literacy Training in Lae, Morobe Province
119
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 CORPORATE SOCIAL RESPONSIBILITY
BSP trained an additional 143 Financial Literacy
Trainers
FINANCIAL LITERACY AND BANKING EDUCATION IN PAPUA NEW GUINEA
120
BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2018 Local Knowledge, Global Solutions
BSP Group Chief Executive Officer, Robin Fleming, CSM