Annual Report 2024 Championing Prosperity for the South Pacific Annual Report 2024 Championing Prosperity for the South Pacific Championing Prosperity for the South Pacific O U R P U R P O S E In this Annual Report, a reference to ‘BSP’, ‘BSP Group’, ‘the Bank’, ‘the Company’, ‘the Group’, ‘our’, ‘us’, and ‘we’ is to BSP Financial Group Limited ARBN: 649704656 and its subsidiaries unless it clearly means just BSP Financial Group Limited. BSP’s Corporate Governance Statement is available on the company’s website: www.bsp.com.pg/about/investors/corporate-governance/#GovernanceDocuments. APRA Disclaimer BSP Financial Group Limited (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. This report reflects a year of change as we continue to enhance the way we serve our customers, support our communities and deliver value to our shareholders. Inside, you will find a comprehensive review of our financial performance, strategic progress and the principles that guide us. This annual report is also the first to showcase our new Bank South Pacific identity, which represents our ambition to be the South Pacific’s international bank. Our refreshed identity has been designed with contributions from customers and staff across the bank. Its goal is to bring our Modernising for Growth strategy alive. The refreshed logo represents unique elements from the South Pacific that tell our story: The drumbeat of the Kundu reverberates across the Pacific, reminding us of our heritage and calling us together. The hook symbolises strength, stability, and prosperity, anchoring us to the region – the South Pacific is our home. Waves represent the oceans that connect us to one another and to the world. A bird in flight guides us on our journey towards a shared, prosperous future supported by modern banking services. As we navigate an evolving economic landscape, our commitment to strength and stability remains unwavering. We invite you to explore this report and gain deeper insight into our achievements and ambitions. Mr Robert G. Bradshaw Chairman Mr Mark T. Robinson Group Chief Executive Officer and Managing Director As part of our refreshed brand identity, BSP collaborated with artists and designers from each of our seven markets to create a unique suite of bespoke tiles inspired by our five core themes: Care, Aspire, Growth, Prosperity, and Journey. This year’s annual report features patterns based around the theme of Prosperity. D I D Y O U K N O W Contents 2 Overview 2 FY24 Highlights 4 Message from the Chairman and CEO 6 Our Strategy 7 Our Brand Story 8 Our Business 10 Financial performance 16 Sustainability Report 18 Materiality Approach 20 Environmental 21 Social 23 Governance 24 Risk Management Framework 30 Board of Directors 32 Executive Team 34 Corporate Governance Statement 35 Governance Framework 36 Board Governance 38 Board Committees 41 Remuneration 43 Risk Management and Compliance 44 Assurance and Control 46 Culture and Conduct 48 Continuous Disclosure 48 Commitment to Shareholders 49 Compliance with ASX and PNGX Corporate Governance Recommendations 50 Remuneration Report 58 Financial Statements 134 Shareholder information 140 Listing and Registry Information 1 Improving our in-branch service F Y 2 4 H I G H L I G H T S In 2024, BSP continued to deliver value for all our stakeholders. Dividends paid to our shareholders increased by 16%. Our customers benefited from reduced wait times and more personalised services. We increased training and development for our people and continued investing in financial inclusion and support for the communities where we live and work. Since November 2024, customers at our PNG Waterfront Branch have been benefiting from a modern, digitally enabled yet staff-assisted banking experience. This Branch is the first physical representation of a new era in banking. The branch offers alternate ways to bank – an opportunity for customers to conveniently complete transactions themselves or receive assistance from staff. Process improvements across the year have enabled faster account onboarding and instant Visa Debit Card and PIN issuance – giving valuable time back to our customers. Customers enjoy the benefit of using free branch WIFI to browse our BSP website, download the APP or log onto Online Banking. We know digital channels make banking much easier, faster and more convenient for our customers. But we also know that some customers aren’t comfortable accessing these services themselves for the first time. Our staff are on hand 7 days a week to demonstrate and educate customers as they navigate online. Waterfront branch also gives customers access to Personal Lending specialists on site, as well as Business Banking and Insurance specialists. Whether it’s a product enquiry or an application – our team are ready to assist. “Our customers want more convenient ways to bank. With help from our friendly team at the Waterfront Branch, they’re delighted by how easy it is to use Online or Mobile Banking.” Strong continued momentum Our Chairman Robert Bradshaw at the reopening of the Waterfront Branch in November 2024. C A S E S T U D Y S H A R E H O L D E R S C U S T O M E R S O U R P E O P L E C O M M U N I T I E S K2.98B Total income 2.8M Customer accounts1 17% on FY23 4,613 Staff K787.3M Income tax paid 23.3% Return on equity (ROE) 180bps on FY23 K2.62B Home loans 48% Women in leadership 204 male : 189 female K5.0M Donations and community projects 2.8% Return on assets (ROA) 30bps on FY23 K398.5M Business loans (SMEs) 64% Women in branch manager positions K12.3M Sponsorships 75% Dividend payout ratio 75% Employee engagement score 1. Excludes dormant transactional accounts. A N N U A L R E P O R T 2 0 2 4 | O V E R V I E W 3 2 | B S P F I N A N C I A L G R O U P L I M I T E D M E S S A G E F R O M T H E C H A I R M A N A N D C E O Our Modernising for Growth strategy, which is backed by an investment of K345 million, gained considerable momentum in 2024. We aim to deliver a significantly improved customer experience wrapped up in a strong legacy of traditional and warm South Pacific delivery. During the year we piloted digital offerings, accelerated digital channel adoption, and developed retail distribution and business banking strategies. We also focused on building capability, upskilling our people for change and launching our new purpose, vision and values. With numerous change initiatives underway, the Group did well to deliver strong financial and operational results. We grew revenue at 8%, driven by foreign exchange earnings and increased transaction volumes. As planned, given the significant investment in technology modernisation and filling specialist roles, our operating expenses grew 22%. Underlying profit increased 10%, to K979 million. The Group’s cost-to-income ratio (CIR) increased, reflecting the cost of our modernisation strategy. Our 2024 CIR of 41.3% still remains competitive on a global basis. Our statutory net profit after tax (NPAT) increased by 17%, including the one-off positive impact of successfully negotiating a K95 million settlement of the additional company income tax matter and a provision related to the planned exit of our ownership interests in finance companies in Cambodia and Laos. NPAT was also positively impacted by a K120 million reduction in general provisions related to a revision of the COVID related economic assumptions. • Digital capability – We filled new specialist roles and invested in software to support the development of modern banking competencies like retail lending analytics. Digital channel adoption continues to increase, with digital transactions growing by 20% in 2024. • Well-prepared workforce – In April, we launched the BSP Academy, helping our next generation of leaders get ready for the modern work environment. By year end, 140 staff had graduated the program. Upskilling also continued as staff took on new roles, including training to work in our new digitally enabled branch at Waterfront in Port Moresby. Waterfront is a great example of our new branch format and experiences, which were designed and launched this year, showcasing the future of the bank. • State-of-the-art infrastructure – We have commenced procuring ATMs that will both dispense cash and take deposits. This will give our customers access to 24/7 banking. We also trialled automated cash counting technology that will deliver considerable time savings to both our customers and staff. We have ordered new EFTPOS devices, which will be rolled out in 2025. Our Modernising for Growth strategy will create a better workplace for our staff, with more skilled and meaningful work, broader careers and new opportunities for mobility across the Group. Retaining a strong capital position In 2024, BSP continued to maintain a strong capital position. Total assets increased by 0.5% to K37.1 billion, supported by 0.6% growth in gross loans. Throughout the year, capital adequacy levels remained well above regulatory requirements, ensuring alignment with BSP’s conservative risk appetite. Maintaining a strong capital position will continue to be a cornerstone of our strategy. A hallmark of BSP’s financial performance has been our ability to deliver consistent dividends to shareholders. Over the past decade, the Group has paid dividends every year, a testament to our focus on delivering sustainable value. At year end, BSP declared a final dividend of K1.21 for 2024, bringing the full year dividend to K1.66, a 16% increase over the previous year. Championing prosperity and wellbeing in the South Pacific In 2024 we continued to deliver essential services to rural communities in our markets across the Pacific. Since 2011, we have used Agency Banking to extend the reach of banking services to underserved or rural areas. In 2024 alone, our agency network facilitated 1.6 million transactions – an achievement recognised in November when BSP won the inaugural Bank of PNG “Financial Inclusion and Deepening Award”. During the year, BSP invested more than K17 million in community projects, sponsorship and donations in the communities where we operate. This included delivering innovative financial literacy programs with some of our strategic partners. For example, the Brisbane Broncos supported our financial literacy programs with school children, while Australian Business Volunteers worked with us to provide valuable training to small and medium enterprises (SMEs). In October 2024, BSP was the Anchor Partner for the Commonwealth Business Forum at the Commonwealth Heads of Government Meeting (CHOGM) in Samoa. Our investment in the Forum highlights BSP’s commitment to promoting business opportunities, sustainability, economic resilience and prosperity for the South Pacific. 2024 was also our fourth year of observing the #BlackThursdays campaign, with our staff wearing black every Thursday in solidarity with the survivors of family, sexual and gender-based violence. BSP continues to support awareness raising programs and provides a safe environment for survivors, including sponsoring a survivor support group. Refreshing the Board After eight years of dedicated service to the Board, Mr Arthur Sam retired as a Director on 21 February 2024. During his tenure, Mr Sam served as Chairman of the Board Risk Committee and the Board Audit and Compliance Committee. We thank him for his enormous contribution to BSP’s strategic direction and performance. Following Mr Sam’s retirement, on 14 May 2024, the Board appointed Stephen Charles Beach as a new non-executive director of BSP. Mr Beach is a highly experienced accounting professional, with 35 years’ experience in corporate advisory, assurance and taxation in PNG, including more than two decades as a PwC Partner. Outlook The Board, management and staff of BSP are committed to implementing the Group’s strategy for growth while championing prosperity for the South Pacific. In the coming year, we will build on the work of the last 12 months and continue to roll out a suite of modern banking products and services. These new services and channels will improve the banking experience for our customers, including reducing branch queues. We will continue with our mission to improve financial inclusion, increase financial literacy and drive positive change for the people and businesses of the South Pacific. On behalf of the Board and management, we thank our stakeholders for their ongoing support. We also congratulate our 4,613 staff for their hard work, dedication and commitment to serving our customers. We look forward to seeing BSP’s new Purpose and Vision brought to life in the coming year as technology investments and process changes deliver an increasingly modern banking experience across the region. Mr Robert G. Bradshaw Chairman Mr Mark T. Robinson Group Chief Executive Officer and Managing Director Mr Robert Bradshaw (left) and Mr Mark Robinson (right) Strong Financial and Operational Results Executing our Modernising for Growth strategy As a systemically important institution in the South Pacific, BSP approaches change carefully, respectfully and thoughtfully. We are determined to shape a culture that embraces change without losing the traditional heart of our business. Our new values, developed with input from the BSP team reflect this. They are: “We Care. We Aspire. We Grow.” To support our Modernising for Growth strategy, we created two new roles within the Executive Leadership Team: a Deputy Group CEO and a Group General Manager Corporate Affairs and Community. Both were filled from inside the Group, demonstrating our depth of talent. During the year, executives and management worked together to build the modern capabilities we need to deliver exceptional banking services to our customers: • Customer-first strategy – With customers as our first priority, the year saw service improvements from streamlining processes, reducing wait times and providing more personalised services. For example, we reduced the onboarding process for Personal accounts and began rolling out our BSP banking app and made more services available online, including foreign exchange for business customers. A N N U A L R E P O R T 2 0 2 4 | O V E R V I E W 5 4 | B S P F I N A N C I A L G R O U P L I M I T E D O U R S T R A T E G Y O U R B R A N D S T O R Y Driven by Purpose, Focused on Growth We are the proud custodians of a legacy that started in Port Moresby in 1957. We have grown strong and spread across the region – into places where others do not venture. The thread connecting our past, present and future is our enduring commitment to the people of the South Pacific. We respect the proud local heritage of our Pasifika nations. We are ocean nations – destined to explore, united by the sea. We are a thousand tribes, guided by the constellations of our ancestors and the art of story-telling through song, dance and art. We live to the rhythm of solwara and the drum beats of the kundu, garamut, lali and conch. These symbols and patterns define us. Our stories endure, marked on skin and face. We wear our flowers and headdresses with pride. As the winds of change sweep far and wide, we are united under a new Bank South Pacific identity – one that represents our ambitions for the region’s prosperity and our aspiration to provide international quality banking services to every South Pacific family and business. Our refreshed identity has been designed with contributions from customers and staff across the bank. The refreshed logo represents unique elements from the South Pacific that tell our story: The drumbeat of the Kundu reverberates across the Pacific, reminding us of our heritage and calling us together. The hook symbolises strength, stability, and prosperity, anchoring us to the region – the South Pacific is our home. Waves represent the oceans that connect us to one another and to the world. A bird in flight guides us on our journey towards a shared, prosperous future supported by modern banking services. Respecting cultural nuances, each of our seven Pasifika territories has its local pattern to help tell its own stories. These patterns merge five elements representing growth, aspiration, care, prosperity and journey – designed by local artists. Together, as one, we are a true regional South Pacific bank with shared values. We Care. We Aspire. We Grow. We are BSP. S T R A T E G I C P I L L A R S Revitalise Revitalise the BSP brand and reputation by becoming a modern, customer-centric, South Pacific regional champion that excels in banking services through visible impact to all stakeholders. Better Serve Underbanked Establish a low cost-to-serve delivery model to provide financial inclusion, financial services, and commercial enablement. Drive Prosperity Serve the growing prosperity of the South Pacific with convenient, digital, banking services. Business Bank Create a dedicated business banking team, product, and service proposition enabling businesses to thrive. Corporate and Government Embed relationship-focused, technology-led, holistic and modern solutions for corporate and government clients to support growth and efficiency within their ecosystems. Optimise Physical Cash Management Modernise the region’s cash economies via a systemic solution for collection, management, distribution and eventual minimisation of cash. People Attract, retain and invest in the best people through a compelling Employee Value Proposition to sustain high performance and delivery of the strategy. Data & Digital Leverage data and digital tools to improve our products and services, streamline and automate processes and improve the customer and employee experience. Technology & Operations Implement modern technology, architecture, tools and platforms to enable automated processes, streamlined experience, and development of innovative products and services. Partnership & Operating model Align business operating model and facilitate strategic partnerships to meet segment-specific needs. Our strategy reflects our purpose of Championing Prosperity for the South Pacific. Each strategic pillar is a critical element in uplifing people, communities and businesses across the region. The Strategic shifts are supported by four key enablers: A N N U A L R E P O R T 2 0 2 4 | O V E R V I E W 7 6 | B S P F I N A N C I A L G R O U P L I M I T E D 3% 22% 75% O U R B U S I N E S S Banking for Shared Prosperity BSP is proudly aiming to be the South Pacific’s International Bank, championing prosperity for the region’s communities. We offer a range of banking services in PNG, Solomon Islands, Vanuatu, Fiji, Samoa, Tonga and Cook Islands. Our bank was established in 1957 in Port Moresby, as a branch of National Australia Bank that was renamed BSP on its sale. In 2001, BSP bought the state-owned Papua New Guinea Banking Corporation to create the largest Bank in PNG, listing on the PNGX in 2003. After other acquisitions, including CBA’s Colonial Bank in Fiji and various Westpac businesses across the South Pacific, we listed on the ASX in 2021 under the ticker “BFL”. As we spread our wings across the South Pacific, we have become more diverse, stronger and more vibrant. Today, we care for the financial wellbeing of communities right across the region. In the last few years, we’ve also made some major investments and changes so we can bring our customers modern banking services. We have the most extensive distribution network, including branches, ATMs, EFTPOS, mobile and internet banking – and agent banking in remote and rural areas. We are the largest bank in the South Pacific. Collectively, our 4,613 employees serve more than 3 million customers from across the South Pacific. Our strength, size and robust balance sheet allow us to manage economic and operating challenges. Our position also allows us to be a strong advocate and partner for important economic developments in the South Pacific, and to invest in financial inclusion, to the benefit of our communities, as well as our shareholders. O U R P U R P O S E Championing Prosperity for the South Pacific O U R V I S I O N The South Pacific’s International Bank O U R V A L U E S We Care We respect, value and empower each other, our customers, stakeholders, and communities we serve, embracing diversity and fostering resilience in everything we do We Aspire We strive for excellence and continuous improvement in everything we do, being committed to honesty, accountability and integrity We Grow We work as a team with and for the wellbeing and prosperity of each other, our customers, stakeholders, and communities we serve, progressing and thriving together Group net profit after tax (NPAT) K1.04B 65% PNG Bank 30% Pacific markets 5% Non-bank entities PNG Bank Pacific markets Non-bank entities Lending market share1 (%) Vanuatu Fiji Tonga Samoa Cook Islands Solomon Islands PNG 13.7 | #3 27.1 | #1 33.1 | #1 33.7 | #1 37.3 | #2 40.1 | #1 61.2 | #1 Deposit market share1 (%) Vanuatu 13.8 | #4 25.8 | #1 39.9 | #1 42.1 | #1 46.6 | #1 55.5 | #1 63.3 | #1 Fiji Samoa Tonga Solomon Islands Cook Islands PNG K1.75B Total Group Operating Profit1 1. Source: Latest market share data provided by central banks for all countries except Cook Islands, which is a business estimate. 1. Excludes one-off joint venture impairment expense (K36 million) and Additional Company Tax settlement income (K95 million). A N N U A L R E P O R T 2 0 2 4 | O V E R V I E W 9 8 | B S P F I N A N C I A L G R O U P L I M I T E D F I N A N C I A L P E R F O R M A N C E Overview BSP has maintained strong growth fundamentals across all key business lines, delivering increases in revenue and profitability. Our balance sheet is robust, with capital adequacy and leverage ratios at more than double the regulatory minimums. We continue to deliver an attractive return on equity for our investors. Delivering for shareholders We maintained our long history of paying dividends and delivering strong returns. 467.2M Total number of shares 6,504 Total shareholders1 97.8% South Pacific ownership1 K1.66 FY24 full year dividend per share 16% on FY23 23.3% Return on equity (ROE) 180bps on FY23 Dividend per share (DPS) (K) FY24 FY23 FY22 FY21 FY20 1.66 1.43 1.74 1.73 1.30 +16% Return on equity (ROE) (%) FY24 FY23 FY22 FY21 FY20 23.3 21.5 27.6 29.7 24.6 +180bps Return on assets (ROA) (%) FY24 FY23 FY22 FY21 FY20 2.8 2.5 3.4 3.7 3.1 +30bps Total shareholder return (TSR) (%) 10-year 5-year 1-year 371 136 57 192 179 69 67 45 12 Capital gains Dividends N E T P R O F I T A F T E R T A X BSP’s improved NPAT performance reflects strong growth in volumes and revenues across the Group, supported by favourable credit impairment reversals and the positive impact of the Additional Company Tax settlement. K1.04B Statutory NPAT 17% on FY23 K979M Underlying NPAT1 10% on FY23 D I V I D E N D Our annual 2024 dividend of K1.66 brings total dividends paid out to shareholders to K776 million, a 16% increase on 2023. K1.66 FY24 full year dividend per share 16% on FY23 L O A N I M P A I R M E N T A N D P R O V I S I O N S Our loan book quality has improved. Loan impairments have reduced on the back of a strong drop in delinquency rates, supporting a decrease in loan provisions of 100bps. K18.2M Impairment expenses (K200m) on FY23 3.3% Provision to loans 100bps on FY23 N E T I N T E R E S T M A R G I N ( N I M ) Net interest margin increased slightly on the back of improved lending rates and funding costs. 572bps Net interest margin 7bps on FY23 C A P I T A L A D E Q U A C Y Our strong capital adequacy improved by 180bps. 26.2% Capital adequacy 180bps on FY23 V O L U M E G R O W T H We sustained our steady growth trajectory in lending, retail mortgages and unsecured personal loans. K9.9B Corporate lending 1% on FY23 K2.9B Retail mortgages 11% on FY23 K2.2B Unsecured personal loans 2% on FY23 1. As at 31 December 2024. 1. Excludes one-off joint venture impairment expense (K36 million) and Additional Company Tax settlement income (K95 million). 11 A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L P E R F O R M A N C E 10 | B S P F I N A N C I A L G R O U P L I M I T E D F I N A N C I A L P E R F O R M A N C E C O N T I N U E D Profit and loss trends K1.04B Statutory NPAT 17% on FY23 K979M Underlying NPAT1 10% on FY23 BSP has delivered strong and sustained performance over the long term, achieving a 10-year compound annual growth rate (CAGR) of 7.7% in NPAT. Our robust fundamentals and disciplined execution have driven consistent growth, reinforcing our position as a leading financial institution. With a track record of stability and success, we remain committed to delivering long-term value for our shareholders. Operating expenses K1.23B Operating expenses1 22% on FY23 41.3% Cost-to-income ratio2 440bps on FY23 Operating profit K1.75B Operating profit 1% on FY23 572bps Net interest margin (NIM) 7bps on FY23 Operating profit (K’m) 10-year NPAT (K’m) FY24 FY23 FY22 FY21 FY20 FY15 1,038 890 1,085 1,075 806 532 CAGR = 7.7% Results summary (K’m) FY232 FY24 Change Revenue 2,749 2,979 8% Operating expense (1,013) (1,231) 22% Operating profit 1,736 1,748 1% Bad and doubtful debt expenses (182) 18 200 Profit before tax 1,553 1,766 14% Income tax (663) (787) 19% Underlying NPAT 890 979 10% JV3 impairment – (36) – ACT4 settlement – 95 – Statutory NPAT 890 1,038 17% Operating expenses (K’m) FY23 1,013 Legal Provisions 56 Core Banking Provisions (29) FY23 Adjusted 1,040 Staff costs 67 Computing 18 Premises and equipment 8 Administration and other costs 97 FY241 1,231 Modernisation Strategy (94) FY24 Adjusted 1,137 CTI FY23 36.90% CTI FY24 41.30% CTI FY23 Adjusted 37.80% CTI FY24 Adjusted 38.20% Total income Total income growth for the Group was 8.4% driven primarily by K120 million increase in net interest income, and K103 million increase in FX income. Our fee income increased by K33 million for the year, while insurance and other income fell by K25 million, mainly reflecting a more subdued result from our Fijian insurance operations. Group financial performance Our strong performance in 2024 continues to lay a solid foundation for BSP’s growth and success. Our conservative capital management strategy will position us to manage the changing environment and realise growth opportunities. 1. Excludes JV impairment of K36 million. 2. 42.5%, inclusive of JV impairment. 2. Comparative period amounts have been restated to conform to presentation in the current year. 3. South East Asia joint venture (JV) asset finance business. 4. Additional Company Tax settlement. C A S E S T U D Y Expanding financial inclusion In February 2025, we launched Wantok Wallet in PNG. This everyday, easy-to-use product allows people without a bank account to send and receive money anywhere in PNG using their mobile phone number. People can use analogue or smartphones – no internet connection needed. Features include cardless cash withdrawals at 300 BSP ATMs and Cash Agents, one-time password security and bill payments. Existing BSP Mobile Banking customers can also transfer funds between their account and a Wantok Wallet. “In PNG, only 25% of people have access to banking services, leaving 8.7 million unbanked. By bringing Wantok Wallet to PNG’s 4 million mobile phone users, we see a unique opportunity to help bridge the financial divide.” FY24 FY23 FY22 FY21 FY20 1,748 1,736 1,614 1,526 1,142 1. Excludes one-off joint venture impairment expense (K36 million) and Additional Company Tax settlement income (K95 million). Agency Banking Manager, Prakash Mowana (right), registering a customer for Wantok Wallet. 1 3 1 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L P E R F O R M A N C E Balance sheet strength Balance Sheet growth slowed, due largely to subdued lending demand in PNG and the reduced use of overdraft limits. Total assets remained steady. Gross loans grew by just 0.6%, assisted by 11% growth in Retail mortgages. Deposits fell 2.5%, with the deposit mix remaining relatively constant. F I N A N C I A L P E R F O R M A N C E C O N T I N U E D Gross loans (K’b) K16.8B 0.6% on FY23 FY24 FY23 FY22 FY21 FY20 16.8 16.7 15.0 14.3 14.4 +0.6% Impairment expenses (K’m) K18.2M (K200m) on FY23 FY24 FY23 FY22 FY21 FY20 18 (182) 5 43 (201) The overall strength of our loan book sharply improved, resulting in a K200 million release of the Group’s provision for bad and doubtful debts. The largest factor behind this reversal was the improved economic outlook, particularly in PNG and Fiji, as well as corporate loan recoveries in PNG and lower retail loan write-offs. Delinquency rates1 (%) 2.8% 80bps on FY23 FY24 FY23 FY22 FY21 FY20 2.8 3.6 2.6 2.8 2.8 -80bps Owing to the improving quality of our loan book, our delinquency rates and provisions to loans ratio have improved in 2024, while total provisions align with expected credit loss calculations. Provisions to loans (%) 3.3% 100bps on FY23 FY24 FY23 FY22 FY21 FY20 3.3 4.3 4.3 5.1 5.5 -100bps Provision balances decreased by 100bps compared to the same period last year, owing to improved economic conditions in the markets where we operate. Deposits (K’b) K29.1B 2.5% on FY23 FY24 FY23 FY22 FY21 FY20 29.1 29.8 26.9 23.9 21.7 -2.5% Total assets (K’b) K37.1B 0.5% on FY23 FY24 FY23 FY22 FY21 FY20 37.1 37.0 33.8 30.4 27.5 +0.5% Capital adequacy (%) 26.2% 180bps on FY23 FY24 FY23 FY22 FY21 FY20 26.2 24.4 25.1 25.7 23.2 +180bps Loan book composition ~65% Corporate segment 59% Corporate loans 17% Retail mortgages 13% Unsecured personal loans 6% Corporate overdrafts 4% Others K9.9B Corporate lending 1% on FY23 K2.9B Retail mortgages 11% on FY23 K2.2B Unsecured personal loans 2% on FY23 Credit quality and provisions Credit quality improved in FY24, with delinquency rates down 80bps to 2.8% and provisions to loans falling 100bps to 3.3%. 1. 90+ days, as a percentage of total loans. 1 5 1 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L P E R F O R M A N C E Our ESG implementation Roadmap We are implementing our ESG program over three Horizons: Horizon 1, our current reporting year, relates to establishing policy, risk and governance frameworks, and designing ESG-related business processes. Horizon 2 is primarily focused on executing ESG-related activities to achieve target states in our material focus areas. Horizon 3 transitions Horizon 2 initiatives into business-as-usual and adopts updated material topics for the next iteration of our ESG program beyond 2027. Positive change for the South Pacific S U S T A I N A B I L I T Y R E P O R T H O R I Z O N 1 2 0 2 4 Origination phase • Determine initial material topics • Install enabling governance structures • Disclose inaugural Sustainability Report • Identify baseline Scope 1 & 2 emissions H O R I Z O N 3 2 0 2 7 Target end state • Hand over ESG program activities to business-as-usual • Review lessons learned • Adopt new material topics for 2027 onwards H O R I Z O N 2 2 0 2 5 2 0 2 6 Implementation phase • Implement ESG program activities • Align business processes with ESG outcomes • Build ESG capacity in credit, risk, operations and emissions accounting • Conduct a materiality assessment (Q3–2026) This is BSP’s first Sustainability disclosure, covering the 2024 activities that comprise Horizon 1 of our Environmental, Social and Governance (ESG) Implementation Roadmap. BSP’s sustainability approach supports the delivery of our business strategy. It reflects consideration of our most material ESG opportunities and risks and is aligned with our vision to be the South Pacific’s International Bank, championing prosperity for the region. 17 A N N U A L R E P O R T 2 0 2 4 | S U S TA I N A B I L I T Y R E P O R T 16 | B S P F I N A N C I A L G R O U P L I M I T E D Topic validation and prioritisation Synthesise the list of topics based on the impact on stakeholder groups, and BSP’s own capacity to influence change in the topic areas Through this process, we arrive at a shortlist of prioritised topics S U S T A I N A B I L I T Y R E P O R T C O N T I N U E D Materiality Approach Our materiality process Material topics In 2024, BSP identified five material focus areas to address in our ESG program. Document review and stakeholder feedback Analyse peer practices Assess internal and external policies, regulations and frameworks Produce a list of material topics from: • A public sentiment scan • Stakeholder interviews and workshops Leadership review and adoption of topics BSP’s leadership at Group level and in our Pacific Markets are consulted on the shortlist of topics Leadership reviews the shortlist based on stakeholder need and alignment with the business strategy Material Topics are selected and approved by the Board F I N A N C I A L H E A LT H Action areas Advance community financial literacy and actively support equitable access to financial services through: • Conducting financial literacy training, either directly or through collaboration with community partners • Considering financial consumer protection • Factoring consumer hardship into our financing, lending and decision-making processes. • Financial Literacy • Financial Inclusion • Responsible Lending • Financial Consumer Protection • Financial Sector Deepening G E N D E R - B A S E D V I O L E N C E Action areas Collaborate with case management providers to counteract and respond to incidents of gender-based violence experienced by staff and customers. Implement policies, programs, and strategies for preventing and responding to harmful behaviours, including forms of physical, sexual, emotional and financial abuse. • Advocacy & Awareness • Counter Human Trafficking • Child labour and modern slavery • Preventing Financial Abuse • GBV support (legal, financial, etc.) programs W O R K F O R C E C A P A B I L I T Y Action areas Train, educate and develop bank staff to deliver proficient financial advice and caring customer service, including knowledge of financial products and services, banking procedures, ESG and adherence to regulatory compliance. • Leadership Development • Knowledge Transfer Programs • ESG Education & Upskilling E S G C O R P O R A T E G O V E R N A N C E Action areas Embed ESG factors in decision-making processes, operations and strategic planning, including: • Establishing governance structures dedicated to monitoring ESG initiatives • Defining sustainability goals • Integrating ESG considerations into the bank’s business strategy and risk management frameworks • Transparently reporting ESG performance, adhering to both regulatory requirements and industry standards related to ESG and the measurement of sustainability outcomes. • Climate Risk Frameworks • ESG Program Management • Alignment to Global Standards • Metrics & Target Setting C L I M A T E V U L N E R A B I L I T Y Action areas Build capability to manage risks and opportunities linked to the actual or potential physical effects of climate change on BSP’s owned or controlled assets and operations, including: • Managing direct exposure to extreme weather conditions (i.e., flooding, storms) • Addressing transitional risks from evolving policies, practices and technologies resulting from efforts to reduce economic dependence on carbon. • Climate Adaptation & Mitigation • Green Finance • Physical & Transitional Risk • Emissions • Waste Disposal & Resource Use In 2024, we undertook our first materiality assessment, which included conducting research and engaging with internal and external stakeholders to identify material ESG issues in our operations and portfolio. We prioritised the material areas based on the scale of their potential impacts on our stakeholders, as well as BSP’s ability to influence change in these areas. 1 9 1 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | S U S TA I N A B I L I T Y R E P O R T Environmental BSP’s South Pacific markets are highly susceptible to the effects of climate change. The region faces an increasingly disproportionate number of climate-related disaster events relative to its contribution to global emissions. Our approach to managing climate risks and opportunities centres on addressing the inherent vulnerability of our staff, customers and communities in our markets. 2024 was a preparatory year for BSP’s climate response, focused mainly on baselining risks. This included developing a deeper understanding of our physical and transition risks relating to the impacts of climate change, allowing us to build climate change considerations into our governance and risk frameworks. Over the next few years, BSP will continue to build on the information gathered to develop policies and procedures to enhance our emissions accounting capability. S U S T A I N A B I L I T Y R E P O R T C O N T I N U E D Social Promoting financial literacy, addressing gender-based violence (GBV) and improving workforce capability are essential to driving social change and economic inclusion in the South Pacific. Given our presence in communities across the South Pacific, BSP is well-positioned to champion prosperity and social change. Facing and ending GBV in all forms remains a key commitment for BSP. Our focus, as part of the ESG program, is in raising awareness, preventing, and addressing GBV in the communities and our workforce. Through collaborative efforts, we are working to develop policies, programs, and strategies to prevent and respond to physical, sexual, emotional, and financial abuse. Improving Workforce Capability contributes to a more fulfilled and capable professionals in the South Pacific. Our efforts in Workforce Capability focuses on training, education, and professional development to equip employees with the skills to flourish in their chosen carrier pathways. Our goal is to prepare staff to deliver proficient financial advice and customer service, with a strong understanding of financial products, banking procedures, ESG, and regulatory compliance. Our Financial Health programs empowers individuals to better manage their resources, contributing to broader economic development and resilience in the region. These programs are focused on: promoting financial literacy; broadening financial inclusion; and championing responsible lending practices to promote financial consumer protection. YES Grow Testimonial: Abus na Kumu Abus na Kumu is a catering and food delivery business owned by Richard Mark. Richard started operating in his home kitchen in 2019 and turned his passion into a small business. After completing the YES Grow Training program and a six-month mentorship with ABV coaches, Richard was able to access funding from BSP to grow his business and open a restaurant in 2025. “This is a milestone and a pillar for future growth and I would like to say thank you to everyone, especially the stakeholders who believed in us to deliver this project (opening of restaurant).” C A S E S T U D Y Richard Mark and his team posing in front of their base of operations during a BSP site visit. 21 2 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | S U S TA I N A B I L I T Y R E P O R T S U S T A I N A B I L I T Y R E P O R T C O N T I N U E D BSP Academy testimonial: Sharneet Singh “The leadership training, and practical insights based on real-world scenarios are the key takeaways for me from the Academy,” says Sharneet Singh, BSP’s Group Financial Controller, as he shares his experiences from the Academy. “The tools from the Academy have helped improve my decision-making and people-management skills, especially in my most recent role where I oversee accounting functions across seven different countries,” he added. “The Academy is critical for developing corporate talent within our Pacific Markets that is globally competitive.” “Black Thursdays” Campaign BSP’s “Black Thursdays” campaign reaffirms our solidarity with survivors of GBV and our commitment to raise awareness on this issue. Our “Black Thursdays” campaign is about resisting and challenging the attitudes and practices that perpetuate GBV. “Black Thursdays” was included as part of the corporate wardrobe in 2020 and observed by all staff Group-wide. Our Black attire, a symbol of mourning, is a solemn reminder of the suffering of countless survivors of GBV, and of our shared responsibility to break the cycles of violence at home, in the workplace, and in our communities. C A S E S T U D I E S Governance Embedding ESG considerations in decision-making processes, operations and strategic planning is a priority for BSP. We are establishing governance structures dedicated to monitoring ESG initiatives, defining sustainability goals, promoting equality and embedding considerations into business strategies and risk management frameworks. Our Board and management play a crucial role in translating ESG values into our strategy. A key aspect of the Board’s oversight responsibility is to ensure that ESG issues have appropriate risk management and reporting processes in place. Group ESG Policy In 2024, we introduced a Group ESG Policy that defines our ESG commitments and recognises the evolving ESG landscape and the need to adapt to emerging risks and regulatory requirements. The policy sets out how we identify, quantify and address ESG risks and opportunities, ensuring compliance with evolving regulations and aligning BSP with international frameworks, including the United Nations Sustainable Development Goals. ESG Steering Committee Given climate-related risks and opportunities will have significant impacts on our employees, customers and operations, the Board has established the ESG Steering Committee, chaired by the Deputy Group CEO, and comprising the Group-level executive sponsors responsible for our five material ESG focus areas. The Steering Committee’s duties include: • ESG strategy development; • Managing climate risks and opportunities; • Metrics and targets; • Oversee program delivery; • Sustainability disclosures; and • Integrating best practice into our operations. Via the Steering Committee, the executive sponsors report directly to the Board Risk Committee (BRC). The Committee has a standing agenda item at each BRC meeting, enabling Board oversight of our ESG program. Sharneet Singh participating in a BSP Academy session. BSP’s Manager for FSV Services, Elizabeth Asigau (right), conducting staff training for the Black Thursdays campaign. 2 3 2 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | S U S TA I N A B I L I T Y R E P O R T The GRAS is set at a level that the Board expects management to operate within, to achieve desired business outcomes: • Preserving capital adequacy • Maintaining liquidity • Achieving targeted performance BSP uses multiple techniques to identify and measure the risks it is exposed to such as: • Risk and control assessments • Emerging enterprise-wide risk assessment We implement measures to manage and control risks within appetite, such as: • Limits, delegated authorities and review and approval processes • Policies and procedures • Issue and incident management • Internal audit The Board and its committees: • Oversee BSP’s system of internal controls and compliance • Review of reports on the measurement of risk, adequacy and effectiveness of BSP’s risk management and internal control systems Our risk management process Our Risk Management Framework (RMF) adopts the principles of the ISO 310000:2018 risk management guideline and outlines BSP’s key risks processes. The aim of the framework is to identify, assess, manage, monitor and report material risks faced by BSP so that we can achieve our objectives. The RMF includes a number of risk types (Strategic, Financial and Non-financial), each with their own specific frameworks to identify, assess, govern and manage their unique risks. The Board approved Group Risk Appetite Statement (GRAS) sets the risk limits the Bank operates within to deliver our strategy. Our material risks are those the Bank is placing extra focus on mitigating, due to their potential to materially impact the Bank, Customers, shareholders and the community, now or in the future. Material risks, together with BSP’s approach to risk management are regularly reported to the Board through the Board Risk Committee. Taking an integrated risk management approach ensures both alignment with and consistency of activities relating to risk management. The RMF provides the guardrails to support greater risk awareness, understanding and consistency across the organisation. Ensuring stability for our shareholders R I S K M A N A G E M E N T F R A M E W O R K BSP is committed to managing all material risks arising from its activities, in accordance with stated policies. The Board has overall responsibility for overseeing the management of these risks. G O V E R N A N D M O N I T O R I D E N T I F Y A N D A S S E S S R I S K S M A N A G E A N D C O N T R O L R I S K S G R O U P R I S K A P P E T I T E S T A T E M E N T ( G R A S ) 2 5 2 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | R I S K M A N A G E M E N T F R A M E W O R K How we manage risk Our risk management approach ensures consistent and effective management of risk and provides for appropriate accountability and oversight. Risk management is enterprise‑wide, applying to all entity levels and is a crucial element in the execution of BSP’s strategy. Our enterprise‑wide risk represents the risks that are core to our banking services business. We organise these into strategic, financial and non-financial risk categories and annually identify key enterprise risks. These top enterprise risks have a focused management oversight given they represent potential material impacts to the strategy. We scan the environment for changes to ensure that our risk universe remains relevant. The enterprise‑wide risk is managed through the lifecycle from identification to reporting. Our assessment process includes quantification of risks under normal and stressed conditions up to, and including, recovery and resolution. Risk exposures are managed through different techniques and are monitored against a risk appetite that supports our strategy. We manage and allocate capital efficiently to grow shareholder value while ensuring that regulatory capital requirements are met. Our governance structure enables oversight and accountability through appropriate mandated board and management committees. The three lines of defence model is leveraged to maintain a sound risk culture with an emphasis on our policies and procedures. Our risk management framework is strengthened by a robust control environment, guided by risk governance standards and policies. This is further reinforced through our values, code of conduct, compliance training, and whistleblowing programs. “Our governance structure enables oversight and accountability through appropriate mandated board and management committees. The three lines of defence model is leveraged to maintain a sound risk culture with an emphasis on our policies and procedures.” R I S K M A N A G E M E N T F R A M E W O R K C O N T I N U E D B S P G R O U P B O A R D R E M U N E R A T I O N A N D N O M I N A T I O N C O M M I T T E E B O A R D A U D I T A N D C O M P L I A N C E C O M M I T T E E B O A R D R I S K C O M M I T T E E C H I E F E X E C U T I V E O F F I C E R E X E C U T I V E C O M M I T T E E ( E X C O ) F I N A N C I A L R I S K C O M M I T T E E S N O N - F I N A N C I A L R I S K C O M M I T T E E S Executive Committee Group Asset and Liability Committee (GALCO) Credit Risk Committee Losses from failure of borrowers and counter-parties to meet their obligations to BSP Audit and Compliance Committee Fines or sanctions from non‑compliance with laws and regulations Operational Risk Committee Losses from inadequate or failed internal processes, systems or people Technology Steering Committee Disruption to business operations from software, hardware and/or communication failures Disclosure Committee Incorrect and selective or inadvertent disclosure of material market sensitive information ESG Steering Committee Oversight of ESG‑related risks and opportunities Liquidity Risk Market Risk Interest Rate Risk Foreign Exchange Risk Sub-risk types: Financial Crime Compliance Risk Regulatory and Licensing Obligations Risk Sub-risk types: Fraud Risk People Risk Business Disruption Risk Transaction Processing Risk Legal Risk Sub-risk types: Cybersecurity Risk Data Management Risk IT Disaster Recovery Planning Sub-risk types: Regulatory Compliance Risk Financial Reporting Compliance Risk Reputation Risk Sub-risk types: Climate Risk ESG Regulatory Compliance Risk Reputation Risk Project Risk 2 7 2 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | R I S K M A N A G E M E N T F R A M E W O R K Material risks The Board and management are placing additional focus on mitigating a number of our material, financial and non‑financial risk types due to their potential impact to BSP, our customers, shareholders and the community. R I S K M A N A G E M E N T F R A M E W O R K C O N T I N U E D Risk description How we manage this risk Technology Risk Technology risk relates to any threat to BSP’s critical operating systems, data and business processes that deliver banking services. We manage technology risk by monitoring the condition of systems to minimise outages or failure of critical systems and technology infrastructure that can impact the services we provide to our customers. • Software lifecycle management tools and processes are implemented to ensure controlled software and configuration deployment across all environments including production; • Key Vendors are actively engaged in continued issue resolution and management via Managed Services contracts; • BSP’s crisis management framework and crisis response teams provide the structure to ensure a coordinated response to disruption incidents; • Business Continuity and Disaster Recovery Plans are in place and renewed and tested annually; and • The IT Steering Committee provide oversight of specific Technology and Information Security risks. Operational Risk This risk arises when there is direct or indirect loss resulting from human factors, inadequate or failed internal processes, systems or external events. We seek to manage and reduce operational risk to optimise the customer experience while supporting BSP’s strategy, reputation and financial performance. We recognise that operational risk is inherent in our business activities and that it is not always cost effective or possible to attempt to eliminate all operational risks. Operational risks of material significance are expected to be infrequent and we will seek to reduce the likelihood and impact of these. Within this context, the management of operational risk has two key objectives: • To minimise the impact of losses suffered in the normal course of business and to avoid or reduce the likelihood of suffering an extreme loss; and • To improve the effective and efficient management of BSP while minimising operational risks. Anti-Money Laundering and Counter Terrorism Financing (AML & CTF) Non-compliance with the AML/CTF Legislation in the jurisdictions where BSP operates. Our compliance with anti-money laundering and combating the financing of terrorism (AML/CTF) regulations in the countries where we operate is continually being enhanced through: • Execution of AML/CTF controls during new customer onboarding; customer product and business risk reviews and correspondent banking relationship management processes; • Staff training and awareness undertaken to ensure that staff are aware of Policies and Procedures and the significance of conducting specialised review for customers; • Enhanced Customer Due Diligence for High Risk and Politically Exposed Persons; and • We will continue expanding and optimising our transaction monitoring and detection capabilities. Information Security Risk The potential danger or harm arising from unauthorised access, use, disclosure, disruption, modification, or destruction of digital information. This risk can originate from various sources, including: • Cyber attacks; • Data breaches; • Malware; and • Other security incidents that compromise the confidentiality, integrity, and availability of sensitive information. Cyber risk remains a key industry threat as perpetrators continue to become more sophisticated. In response, BSP has committed to the continued enhancement of its security capability to ensure that the associated risks remain within the risk appetite and managed through: • Security Monitoring; • Security Testing, including Internal/External system penetration testing to identify vulnerabilities; • Continuing awareness on Information Security policies and staff training on emerging cyber security threats; and • PCI DSS compliant with security processes and procedures to secure payment card data. Risk description How we manage this risk Credit Risk Inability of customers to meet loan obligations and or current/prospective threat to BSP’s earnings and capital as a result of a counterparty’s failure to comply with a financial or other contractual obligation. We manage our credit risk by maintaining a culture of responsible lending and a robust risk policy and control framework. • Processes are in place that identify, assess and control credit risk in relation to the loan portfolio for loan impairment; • Defining, implementing and continually re-evaluating risk appetite under actual and stressed conditions. • Monitoring our credit risk exposure relative to approved limits; • Ensuring that there is independent monitoring of credit risk and its mitigation independently of the business functions; and • Adequate provisioning held in compliance with IFRS9. People Risk Inadequate succession planning may lead to key-person dependency on critical job roles or in leadership positions. BSP has placed key emphasis on an effective Succession Planning program. • Competitive retention packages and programs ensuring that BSP remains the employer of choice in the market. • BSP proactively responds to best market practices that aids to maintain its position as the market leader. Targeted staff development, training and certification based on training needs analysis undertaken by business units. Regulatory/Compliance Risk Failure to comply with legal, regulatory and prudential obligations. Exposure to regulatory fines for non-compliance of laws/regulations. We have documented compliance plans and established Compliance Obligations registers to ensure we comply with the legal, regulatory and prudential obligations in all the countries we operate and this process is overseen by our Management Audit and Compliance Committee. • Update, capture and understand requirements of the obligations register. Project Risk Refers to an uncertain event or condition that, if it occurs, will affect the project and may result in the inability to deliver within budget and agreed timelines. BSP has a Project Management Office with the aim of delivering programs of work aligned to the BSP’s strategic objectives including: • Ensuring deliverables are achieved across the programs; • Managing the benefits realisation process for delivered projects and programs; and • Optimising the use of staffing and other resources to achieve the above. Project risk is further managed by ensuring that: • Policies and Procedures are in place to manage project governance; • Project issues, risks, dependencies and constraints that may impact implementation are managed; • Monthly meetings held to monitor programs; and • Projects are supported by Executive Management and progress oversight by Board. Interest Rate Risk The possibility for BSP to experience loss in earnings due to factors that affect the overall performance of the financial markets resulting from changes to the interest rates and foreign exchange (FX) rates. Risk limits are set and reviewed at least annually and in line with our defined risk appetite. The criteria for setting risk limits include relevant market analysis, market liquidity and business strategy. This limit structure comprises the following types of market risk limits: • Value at Risk (VaR) limits; • Position and sensitivity (Non-VaR) limits; • Stress Testing for Foreign Currency, Interest Rate and Liquidity Risk; • Tracking performances against approved Group Risk Appetite and Policy limits daily/monthly; • Balance sheet impact on Loans and Deposits; • The above process is overseen by our Group Asset & Liabilities Committee and reported to Executive Committee and Board; and • Loan portfolio is denominated in local currency and on variable interest rate. Climate Risk The possibility of climate change on businesses and society. It can be divided into two main categories: Physical Risks and Transitional Risks. Physical Risks are categorised as “Acute” physical risks (Event-driven, including increased severity of extreme weather events, such as cyclones, floods, or heat waves), and “Chronic” physical risks (Changes in typical conditions over long time periods caused by climate change, such as warming resulting in sea level rise). Transition risks relate to policy, technology and regulatory changes as South Pacific markets move away from relying on fossil fuels and toward a low-carbon economy. BSP has placed key emphasis on an effective Climate risk program. • Considering climate risks in business continuity plans; • Monitoring significant climate risks and current indicators and trends; • Progressively reviewing and updating organisational strategies to account for the changing climate risk regulations; • Improving employee awareness and climate risk literacy. Regular engagement with material businesses and industry representatives. 2 9 2 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | R I S K M A N A G E M E N T F R A M E W O R K B O A R D O F D I R E C T O R S Guiding Strategic Growth Our Board of Directors embodies a commitment to financial resilience, innovation and community-driven growth across the South Pacific. With decades of global and local governance experience, the Board also has a deep understanding of our region’s unique opportunities and challenges, and a determination to support businesses, empower communities and enhance financial inclusion. ROBERT G. BRADSHAW LLB Chairman, Non-Executive Director PATRICIA TAUREKA-SERUVATU LLB, MAICD Non-Executive Director MARK T. ROBINSON Group Chief Executive Officer and Managing Director FRANK BOURAGA CPA, MAICD Non-Executive Director Appointed Chairman: February 2023 Robert Bradshaw was appointed to the BSP Board in September 2017 and served as Chairman of the Remuneration and Nominations Committee from 2019 until his appointment as Board Chairman in February 2023. Robert holds a Bachelor of Laws from the University of Papua New Guinea and has practiced law for over 25 years and has served on a number of Boards and is currently the Chairman of Post PNG Limited. Appointed: April 2022 Committees: Patricia is a Law practitioner with over 30 years’ experience in the legal, superannuation, property, commercial and corporate services in PNG. Patricia holds a Bachelor of Laws from the University of PNG and was admitted to practice law in PNG in 1988. She is a member of the Australian and PNG Institute of Company Directors. Appointed Executive Director: March 2023 Mark T. Robinson was appointed Group CEO of BSP Financial Group Limited (BSP) in November 2022 and commenced work in March 2023. He is a senior financial services executive and globally experienced banking Chief Executive Officer with more than thirty years’ experience across developed and emerging markets. Mark graduated from the University of Chicago with a Bachelor of Arts and he also holds a Master of Business Administration from the University of Chicago’s Booth School of Business. Appointed: December 2020 Committees: Chair Frank is a qualified CPA accountant with over 26 years experience. Currently, he is a partner in Assurance and Business Advisory Services with SBC Solutions. Previous roles include Country Managing Partner for Ernst & Young PNG, PricewaterhouseCoopers and Star Business Consultants. Frank is a director of the PNG Cancer Foundation and the PNG SP Hunters. Frank holds a Bachelor of Business (Accounting) from Central Queensland University and is a member of the Australian Institute of Company Directors. See more details at bsp.com.pg/about/board-of-directors/ Board Committees Board Audit and Compliance Committee Board Risk Committee Remuneration and Nominations Committee SYMON BREWIS-WESTON (HONS), MAPPFIN Non-Executive Director STEPHEN BEACH BSC (ECON. & ACC.), CPA Non-Executive Director FAAMAUSILI DR. MATAGIALOFI LUA’IUFI BA, MSC, PHD Non-Executive Director PRISCILLA KEVIN BSCS, MAICD Non-Executive Director STUART DAVIS LLB, GAICD Non-Executive Director IAN A. TARUTIA OBE, FAICD, FPNGID Non-Executive Director Appointed: April 2021 Committees: Chairman of BSP Financial Group (Fiji) (since 2024) With broad international experience in financial services, Symon has a deep understanding of markets across Australia and Asia Pacific. He was CEO of Humm Group Ltd and Sovereign Assurance Co. Ltd (NZ), where he held senior Executive positions for 15 years. Symon holds a Bachelor of Economics (Hons) and a Master of Applied Finance from Macquarie University. He was the 2015 recipient of the UN Global CEO Women Empowerment Principle’s Leadership Award for his contribution to diversity and women’s empowerment. Appointed: March 2024 Committees: Stephen is a qualified accounting professional with over 40 years experience in assurance, business advisory, taxation, and corporate reporting, including 35 years spent in PNG. He was a partner at the PNG PwC practice for 23 years and is a principal at Beach Accounting Advisory in PNG. Stephen is a long serving member of the PNG Certified Practicing Accountants, and is an alternate member of the Accountants Registration Board and the Institute of Chartered Accountants in England and Wales, CPA Australia and the Australian Institute of Company Directors. Appointed: December 2016 Committees: Chair Faamausili is a seasoned public sector practitioner, having served as CEO of the Samoan Public Service Commission for approximately 12 years, prior to moving into consultancy roles in 2008. Faamausili holds a PhD and a Masters degree in Management Science and a Bachelor’s degree in Sociology and Political Science. She is a member of the Australian, PNG and Samoan Institute of Company Directors, as well as the Samoa Human Resource Institute. Appointed: April 2020 Committees: Priscilla is an IT professional specialising in Enterprise Resource Planning (ERP) Support Advisory. She has over 20 years ICT industry experience, providing ICT consultancy and support to a range of businesses and government bodies. Priscilla holds a Bachelor’s Degree in Computer Science from PNG University of Technology and is an advocate and founder of PNG Women in STEM and Digital ICT Cluster Inc. She is a member of the Australian Institute of Company Directors. Appointed: August 2017 Committees: Chair Stuart is an experienced financial services professional with substantial banking, strategy, risk and regulatory experience across Australia and Asia Pacific Region. He has held senior executive roles including CEO of HSBC Australia, India, Taiwan. He is currently Non-Executive director across NextDC Ltd, Appen and PayPal Australia. Stuart holds a Bachelor of Law Degree from the University of Adelaide and is a Graduate of the Australian Institute of Company Directors. Appointed: April 2023 Committees: Ian has extensive strategic leadership and governance experience across the superannuation and financial services industry, including 15 years as CEO of National Superannuation Fund (Nasfund) in PNG, the establishment of NCSL in 2003 (the largest savings and loan society in the Pacific by membership) and former Chairmanship of the Pacific Islands Investment Forum. Ian holds a Bachelor of Business Economics and an MBA from the University of PNG, as well as Diplomas in Financial Markets (Australia) and Economic Policy Analysis (PNG). He is fellow of both the Australian and PNG Institute of Company Directors. 31 3 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | B O A R D O F D I R E C T O R S E x e c u t i v e Te a m E X E C U T I V E T E A M PETER BESWICK Deputy Group Chief Executive Officer MARYANN LAMEKO-VAAI Acting Group Chief Financial Officer NUNI KULU Group Chief Operating Officer Appointed: August 2024 Peter is a qualified Chartered Accountant and has over 25 years experience in banking across business, retail, corporate, government and credit risk management. Prior to his appointment in August 2024, he was Group General Manager Corporate Banking from 2011. He has held senior leadership roles across Australia and South-East Asia – for the Commonwealth Bank of Australia, National Australia Bank and Bank of New Zealand. Appointed: August 2024 Maryann assumed this role in August 2024, after serving as Group General Manager Pacific Markets since June 2022. She joined Westpac Samoa in 2012 as Head of Finance & Operations and later became Country Head of BSP Samoa in 2015. With over 20 years of experience, Maryann has held various executive roles in finance, accounting, auditing and operations. She holds a Bachelor of Commerce from Auckland University and Chartered Accountant accreditations from CPA Australia and the Samoa Institute of Accountants. Appointed: April 2023 Prior to being appointed as GCOO, Nuni was General Manager Digital. She joined the former PNG Banking Corporation as a graduate and held numerous roles within Treasury, Markets and Retail Banking during the course of her career. Nuni has a Bachelor of Commerce from the Australian National University and has undertaken General Management studies at INSEAD and Melbourne Business School. RONESH DAYAL Group General Manager Retail Banking DANIEL FAUNT Group General Manager Corporate Banking PAUL BLACK Group General Manager Pacific Markets Appointed: August 2024 Ronesh oversees the BSP Group’s Retail business, which includes the largest branch and agency banking network in the South Pacific, digital banking services, Retail product portfolios and customer segmentation. He has over 20 years of experience in financial services, including life insurance and banking. Prior to his current role, Ronesh was the Group’s Chief Financial Officer. He also oversees the BSP Group’s Strategy, leading initiatives under the Modernisation program. Ronesh has a Bachelor of Arts Degree with double majors in Accounting & Financial Management and Information Systems. He is a fellow member of CPA Australia and CPA PNG, and a chartered accountant member of The Fiji Institute of Chartered Accountants. Appointed: August 2024 Since joining BSP in 2016, Daniel has held senior leadership roles including – Group General Manager Retail and Group General Manager Pacific Markets. Daniel has extensive experience in financial services having held senior leadership roles with the ANZ Group for 20 years across Australia, PNG and the Pacific Markets. Daniel holds an MBA from Deakin University and a Bachelor of Business in Banking & Finance from Queensland University of Technology. Appointed: August 2024 Paul brings over 35 years of Retail and Corporate banking experience across Australia and PNG. Joining BSP in 2011, he’s held senior positions, including Deputy General Manager Corporate Banking, and has supported operations in the Pacific Islands. Prior to BSP, he spent 22 years at CBA in senior corporate, retail and relationship banking roles. His expertise encompasses corporate lending, credit risk and stakeholder management. A member of FINSIA, Paul is currently completing his MBA. See more details at bsp.com.pg/about/executive-management/ MIKE HALLINAN Group Chief Risk Officer VANDHNA NARAYAN Group Chief Compliance Officer & Company Secretary RICHARD NICHOLLS Group Chief Information Officer Appointed: March 2023 Mike was re-appointed as Group Chief Risk Officer (GCRO) after retiring in 2022. Mike’s career spans over 40 years in Banking and Finance – specialising in risk and credit management. He has held senior leadership roles managing government, corporate and institutional relationships for the Commonwealth Bank of Australia, as well as Executive Lending positions with the former Papua New Guinea Banking Corporation. Mike is a qualified CPA, MAICD and is a Fellow of the Australian Bankers Institute. Appointed GCCO: February 2021 Appointed Secretary: October 2024 Her role oversees the Group’s Compliance activities, including BSP’s Anti-Money Laundering (AML) Program, it’s regulatory and policy compliance program and administrative oversight over the Group’s internal audit and credit inspection functions. Vandhna is an experienced legal practitioner, with over 30 years experience in litigation, human rights, compliance and corporate governance in Australia, New Zealand, PNG and Fiji. Former roles have included Group Head of Compliance and AML for BSP, and General Manager Legal & Compliance for BSP Fiji. Appointed: May 2023 Richard has over 30 years in technology management across the financial services industry. He has held senior technology delivery and support roles in investment and retail banking across the United Kingdom, Australia, Philippines and Papua New Guinea. Prior to joining BSP, Richard was the Strategic Change Management consultant for Nomura International and Head of Enterprise Technology Asia for Macquarie Bank based in the Philippines. Richard is a graduate of the University of New South Wales where he received his Bachelor of Electrical Engineering. HARI RABURA Group General Manager Corporate Affairs & Community ROHAN GEORGE Group General Manager Treasury & Markets PETER KOMON Acting Group General Manager People & Culture Appointed: August 2024 Hari is responsible for supporting the Group’s commitment and investment across the communities in Papua New Guinea and the broader Pacific markets. Hari has a strong network within the communities across the Pacific & has a passion for leading social impact causes. Her career spans over 20 years of experience delivering strategic HR initiatives. Prior to her appointment, she was BSP’s Group General Manager People & Culture. She is a graduate of the University of Goroka (PNG) and has undertaken General Management studies at INSEAD and Melbourne Business School. Appointed: February 2015 Rohan is an accomplished Treasury & Markets professional with over 30 years of experience across developed and emerging financial markets. He is a specialist in managing market and liquidity risks across a diverse range of asset classes, including fixed income, foreign exchange, commodities, and capital markets. Prior to joining BSP, Rohan held senior positions at ANZ (Head of Global Markets, Cambodia & Laos), Westpac (Pacific Treasurer) and at BNP Paribas Investment Management in Sydney. He holds a Master of Applied Finance degree from Macquarie University Australian Financial Markets Association and the Sydney Futures Exchange. Appointed: August 2024 Peter has over 16 years’ experience in the Financial Service Sector. Since joining BSP in 2012, he has held various senior leadership roles including overseeing rural banking, the nationwide branch network, and more recently, the Head of Payments. Prior to joining BSP, Peter worked for PNG Microfinance Limited, and studied Agriculture Economics at the University of Sydney. 3 3 3 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | E X E C U T I V E T E A M C O R P O R A T E G O V E R N A N C E S T A T E M E N T This Corporate Governance Statement, which has been approved by the Board, describes our corporate governance framework, policies and practices as at 31 December 2024. In this Corporate Governance Statement, a reference to ‘BSP’, ‘BSP Group’, ‘the Bank’, ‘the Company’, ‘the Group’, ‘our’, ‘us’, and ‘we’ is to BSP Financial Group Limited ARBN 649 704656 ASX:BFL|PNGX:BSP and its subsidiaries unless it clearly means just BSP Financial Group Limited. Our approach to Corporate Governance BSP Financial Group Limited (BSP) is committed to maintaining high standards of corporate governance underpinned by our Purpose ‘Championing Prosperity for the South Pacific’, our Vision ‘The South Pacific’s International Bank’ and our Core Values “We Care”, “We Aspire” and “We Grow”. This approach is supported by a comprehensive framework of corporate governance principles and policies.1 The Board ensures that BSP complies with the requirements of the Papua New Guinea Companies Act 1997, Australian Corporations Act 2001 (Cth), PNGX Listing Rules, PNGX Corporate Governance Code for Listed Issuers, the ASX Listing Rules and the ASX Corporate Governance Principles and Recommendations (4th Edition). BSP also complies with all applicable regulations on corporate governance. These currently include: • the Bank of Papua New Guinea (BPNG) Banking Prudential Standard BPS 300: Corporate Governance (issued under Section 27 of the Banks and Financial Institutions Act 2000)2 • the Reserve Bank of Fiji Prudential Supervision Policy Statement No. 1: Minimum Requirements for Corporate Governance of Licensed Entities (2019); • the National Reserve Bank of Tonga Prudential Statement No. 9 (revised 2014): Governance; • the Financial Supervisory Commission of the Cook Islands Banking Prudential Statement BPS09: Governance Risk Management (June 2019); • the Central Bank of Samoa Prudential Statement 1 (January 2021); • the Reserve Bank of Vanuatu International Bank Prudential Guideline No. 10 Management of Financial Institutions: Fit & Proper Requirements; and • the Central Bank of Solomon Islands Prudential Guideline No. 1 on Governance (2024). The Board, Management and staff of BSP are aware of their responsibilities to the people of Papua New Guinea, Solomon Islands, Vanuatu, Fiji, Samoa, Tonga and Cook Islands. BSP’s Corporate Governance Principles provide a framework that helps to ensure that BSP deals fairly and openly with all its stakeholders – regulators, shareholders, customers and staff alike. G O V E R N A N C E F R A M E W O R K 1. Our corporate governance Principles and Policies are available at bsp.com.pg/about/investors/corporate-governance/#PolicyDocuments 2. Under review. 3 5 3 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | C O R P O R AT E G O V E R N A N C E Roles and Responsibilities of the Board The Board Charter1 defines the roles, responsibilities and composition of the Board. It also outlines the matters reserved for the Board and those that are delegated to Management. The Board is responsible to the Shareholders for the overall performance of BSP. It provides leadership and strategic direction, establishing goals for management and monitoring the achievement of those goals with a view to optimising BSP’s performance and increasing shareholder value. The key functions of the Board are: • setting the overall strategy of BSP regarding operations, finance, dividends, and risk management; • appointing the Group Chief Executive Officer (GCEO), Executives and Company Secretary and setting appropriate remuneration packages; • endorsing appropriate policy frameworks for Management; • reviewing Board composition and performance; • reviewing Management performance; • approving an annual strategic plan with 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 BSP complies with laws 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; • with the assistance of the Board Audit and Compliance Committee, selecting and recommending to the Shareholders the appointment of external auditors; and • approving the financial statements. The Board has delegated a number of these responsibilities to its various Committees. The Committees and responsibilities are detailed in the Board Committees section of this Report. 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 Executive Committee level 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. Board Composition The maximum number of Directors prescribed by the BSP Constitution and approved by the Shareholders is ten. As at 31 December 2024, there were ten Directors as set out below: Director Date of appointment Length of service (as at 31 Dec 2024) Status Robert Bradshaw September 2017 7 years 3 months Non‑Executive, Independent Mark Robinson November 2022 2 years 1 month Executive, Non-Independent Faamausili Dr. Matagialofi Lua’iufi December 2016 8 years Non‑Executive, Independent Stuart Davis August 2017 7 years 4 months Non‑Executive, Independent Ian Tarutia April 2023 1 year 8 months Non‑Executive, Non-independent Priscilla Kevin April 2020 4 years 8 months Non‑Executive, Independent Frank Bouraga December 2020 4 years Non‑Executive, Independent Symon Brewis-Weston April 2021 3 years 8 months Non‑Executive, Independent Patricia Taureka-Seruvatu April 2022 2 years 8 months Non‑Executive, Independent Stephen Beach2 March 2024 9 months Non‑Executive, Independent 1. The Board Charter is available at bsp-com-pg-agfud6dwcvh6hae9.a01.azurefd.net/uploads/2025/03/Board-Charter.pdf 2. Stephen Beach replaced Arthur Sam, who retired from the Board effective 29 February 2024. B O A R D G O V E R N A N C E Independence and Conflicts of Interest Directors of BSP avoid conflicts of interest, by declaring their interest and refraining from involving themselves in the consideration of matters where a conflict might arise. BSP’s Corporate Governance Principles and Managing Conflicts of Interest Policy requires Directors to disclose any new directorships and equity interests at each Board Meeting. The Company Secretary maintains a running register of each Director’s interests to ensure that a majority of the Board is independent. Directors are deemed to be independent if they are judged free from any material or other business relationship with BSP that would compromise their independence. Prior to appointment, all Directors are required to provide information to the Board for it to assess their independence. In assessing the independence of Directors, the Board takes into consideration the following: • 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; or • 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 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. BSP fully complies with the requirements of the BPNG Prudential Standard 4/2003 – Limits on Loans to Related Parties and details of Related Party Transactions are summarised in Financial Note 35 on page 124 of BSP’s 2024 Annual Report, while Directors’ Interest Register on pages 138–139 of the Annual Report provides details of the Directors’ Interests. Chair The Board Chair is an independent Non‑Executive Director who must be elected by the Directors and not have been a former executive officer of BSP or the GCEO in the last three years. The Chair can hold the position for a maximum of six consecutive years unless there are exceptional circumstances for which prior approval of the prudential regulator is required. The Chair’s responsibilities include: • ensuring open and inclusive discussion and debate by the Board; • maintaining a regular, open and constructive relationship and dialogue with the GCEO and management, and being the key link between the Board and management; • representing the views of the Board and the BSP Group to stakeholders, including shareholders, regulators and the community; and • setting the Board agenda in conjunction with the GCEO and Company Secretary and ensuring the provision of information to the Board, meeting cadence and discussions are appropriate to enable effective decision making by the Board. Company Secretary The BSP Company Secretary, through the Chair, is directly accountable to the Board for the 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. Key responsibilities of the Company Secretary include: • finalising the agenda for each Board and Committee meeting in conjunction with the respective Chairman; • ensuring the timely completion and circulation of board and committee papers ahead of scheduled meetings; • collation of the Board meeting minutes, capturing key discussion points and resolutions for review and approval at the next Board meeting; • advising the Board of relevant statutory matters and ensuring compliance of the same; • maintaining a record of Directors’ dealings in securities, declarations of interests and potential conflicts; and • assisting with arranging Director induction and professional development. The Company Secretary plays a pivotal role in carrying out the administrative function of the Board and is one of the Board’s main liaison with Management and external stakeholders. 3 7 3 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | C O R P O R AT E G O V E R N A N C E Meetings and Attendance During 2024, four Committees of the Board, with functions and powers governed by their respective charters, were in operation. These Committees were the Board Audit and Compliance Committee (BACC), Board Risk Committee (BRC), the Remuneration and Nominations Committee (RNC) and the Disclosure Committee (DC). Scheduled meetings of the Board are held at least seven times a year and the Board meets on other occasions as necessary to deal with matters requiring attention. Meetings of the Committees are scheduled regularly during the year, aligning with Board meeting dates. Where possible, the Board rotates its meetings between locations both in Papua New Guinea and the Pacific Markets. On these occasions, the Board also visits company operations and meets with local management and key customers. The Chair, in consultation with the GCEO and Company Secretary, determines meeting agendas. Broad ranging discussion on all agenda items is encouraged with healthy debate seen as vital to the decision making process. Meeting processes are specified in the Board Charter.1 Membership and attendance records at Board and Committee meetings during 2024 are detailed below, while remuneration details are provided in the 2024 Annual Report under Financial Note 36 – Directors and Executive Remuneration. Directors Board BACC BRC RNC Robert Bradshaw 7/7 – – – Mark Robinson 7/7 – – – Arthur Sam 1/1 1/1 1/1 – Stuart Davis 7/7 6/6 6/6 – Frank Bouraga 7/7 6/6 2/2 – Symon Brewis-Weston 7/7 – 6/6 7/7 Priscilla Kevin 7/7 – 6/6 – Ian Tarutia 7/7 5/6 – – Faamausili Dr. Matagialofi Lua’iufi 7/7 – – 7/7 Patricia Taureka-Seruvatu 7/7 6/6 – 6/7 Stephen Beach 5/5 4/4 4/4 – Independent Committee Members (ICM)2 Vele Rupa 1/1 – – – Serena Sasingian – – 6/6 – Paul Morgan – 1/1 – – The Disclosure Committee comprises of the Chair, GCEO, Group Chief Financial Officer (GCFO), Group Chief Risk Officer (GCRO) and Company Secretary. It is not required to meet regularly but meets as and when required to review and approve any public disclosures to comply with the respective Listing Rules of both PNGX and the ASX. Committee members are chosen for the skills, experience and other qualities they bring to the respective Committees. Membership is reviewed annually by the Board as part of the Board’s annual performance review. Except for the Disclosure Committee, the Chair is not a member of any other Committee. At the next Board meeting following each Committee meeting, the Chairs of the respective Committees gives the Committee’s report to the Board. 1. The Board Charter is available at bsp-com-pg-agfud6dwcvh6hae9.a01.azurefd.net/uploads/2025/03/Board-Charter.pdf 2. Vele Rupa and Paul Morgan’s tenure ended in March 2024. Serena Sasingian is the only ICM as at 31 December 2024. B O A R D C O M M I T T E E S Board Audit and Compliance Committee (BACC) The BACC assists the Board to discharge its responsibilities of oversight and governance in relation to financial, audit and compliance matters. The responsibilities of the BACC 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 controls and effectiveness of BSP’s compliance obligations; • the systems for ensuring operational efficiency and cost control; • the systems for approval and monitoring of expenditure including capital expenditure; and • 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 BACC is formed amongst the Non‑Executive Directors, excluding the Chair. The BACC must have a minimum of three Non‑Executive Directors, the majority of whom must be independent. The Board may also appoint to the BACC additional individuals who are not executives or members of the Board who have specialised skills to assist the BACC. The chair of the BACC must be an appropriately experienced independent Non‑Executive Director, other than the Chair (or other Board committee chair). The BACC must meet at least four times annually and special meetings may be convened as required. Minutes of all BACC meetings must be recorded and tabled at the subsequent BACC meeting. The BACC regularly reports to the Board at the earliest possible Board meeting after each BACC meeting about any matters that should be brought to the attention of the Board and any recommendations requiring Board action. Board Risk Committee (BRC) The BRC assists the Board to discharge its responsibilities of oversight and governance in relation to the implementation of BSP’s risk management framework. The responsibilities of the BRC 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, cyber security, reputational risk and other risks that may arise); and • oversee BSP’s risk profile and risk management strategy, and recommend BSP’s risk appetite statement. Membership of the BRC is formed amongst the Non‑Executive Directors, excluding the Chair. The BRC must have a minimum of three Non‑Executive Directors, the majority of whom must be independent. The Board may also appoint to the BRC additional individuals who are not executives or members of the Board who have specialised skills to assist the BRC. The chair of the BRC must be an appropriately experienced independent Non‑Executive Director, other than the Chair (or other Board committee chair). The BRC must meet at least four times annually and special meetings may be convened as required. Minutes of all BRC meetings must be recorded and tabled at the subsequent BRC meeting. The BRC regularly reports to the Board at the earliest possible Board meeting after each BRC meeting about any matters that should be brought to the attention of the Board and any recommendations requiring Board action. 3 9 3 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | C O R P O R AT E G O V E R N A N C E Remuneration and Nominations Committee (RNC) 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 the GCEO, and setting 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 GCEO, 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; • 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; and • Board succession planning and recommendation to the Board for appointment of new directors. The RNC is comprised of four Non‑Executive Directors. The chair of the Remuneration and Nominations Committee must be one of the independent Directors, other than the Chair of the Board. The RNC must meet at least once annually and special meetings may be convened as required. Minutes of all RNC meetings must be recorded and tabled at the subsequent RNC meeting. The RNC regularly reports to the Board at the earliest possible Board meeting after each RNC meeting about any matters that should be brought to the attention of the Board and any recommendations requiring Board action. Disclosure Committee (DC) Established by the Board, the DC comprises of the Chair (or in his/her absence, another Non‑Executive Director), the GCEO, the GCFO, the GCRO and the Company Secretary. The chair of the Disclosure Committee is the most senior Director present. The members of the DC 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: • approving the release of any announcement to PNGX and ASX other than: • an announcement that relates to a matter which is both material and strategically important, which will require approval by the Board; or • procedural matters such as notice of changes to equity securities or directors’ holdings, which will require approval by the Disclosure Officer; • considering whether BSP is obliged or is required to respond to a market rumour or media speculation; and • overseeing the Disclosure Officer’s administration of the Continuous Disclosure Policy. Unlike other Committees, the DC is not required to have scheduled meetings throughout the year but meets regularly whenever a market disclosure is required. Board Skills Matrix BSP has in place a Board skills matrix that was developed following a Board assessment undertaken in 2019.1 Skills that form part of this matrix include Risk Management, Regulatory/Government Policy, Business and Financial acumen, experience as a Non‑Executive Director, Remuneration and Corporate Governance. Since 2019, subsequent appointments to fill vacancies have been made giving regard to this matrix. In doing so, the Board ensures it has a broad range of skills, experience and expertise that enables it to meet its objectives. 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. 1. The Board Skills Matrix was under review during 2024, and has now been revised. The revised Board Skills Matrix will be used for Board reviews moving forward. B O A R D C O M M I T T E E S C O N T I N U E D Director Appointment, Election and Re‑election Under the Constitution, at each Annual General Meeting (AGM) one-third of BSP’s Directors, in addition to any Director appointed during the year and excluding the GCEO, must offer themselves for re-election by the Shareholders. A Director is normally appointed for an initial term of three years and at the end of the term, the Director becomes eligible for reappointment by the Shareholders for a further term of three years and, if not reappointed, retires automatically. A Director is normally not permitted to hold office for a period exceeding three terms of three years or nine years, whichever is the lesser. In accordance with the Constitution and BSP’s Fit & Proper Policy, the Board gives careful consideration to setting the criteria for new Director appointments. These appointments are then recommended to Shareholders. The Board has delegated the initial screening process involved to the RNC, which in accordance with the RNC Charter, may seek independent advice on possible new candidates for Directorships. All Directors must be satisfied that the best candidate has been selected. BSP undertakes appropriate checks before appointing a person as a Director or offering them to Shareholders as a candidate for election. BSP 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. This includes a brief background of the Director and details of any other material directorships the Director may have. For initial election, BSP provides a statement that the Director has satisfied the ‘fit and proper person’ assessment by BPNG. For re-election, a statement concerning the term of the office currently served by the Director is included. If the Board considers a Director to be independent, it states so in its recommendation in the Notice of Meeting. 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. This includes an assessment of the person’s: • Honesty, integrity reputation, good character and fairness; • Education, competence, capacity, capability; and • Financial soundness. 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. Director Induction and Professional Development BSP has a program for inducting new Directors and providing appropriate professional development opportunities for Directors that are managed by the RNC. Upon joining the Board, new Directors are provided with a Letter of Appointment setting out the terms of the appointment, and undertake a comprehensive induction program. The Letter of Appointment sets out the conditions of appointment, including term and remuneration and the expectations and obligations of the role. The induction program includes familiarisation with key corporate governance policies; one-on-one meetings with the Board Chair, respective Committee Chairs, other Directors and Senior Management to help new Directors develop an understanding of BSP’s business, strategy, history, and culture. Director development is encouraged by the Board as part of its efforts to remain robust and cognisant. Whilst Directors are encouraged to identify and advise of courses that are of interest, the RNC provides regular updates to the Board on available director development options. Should a Director wish to undertake a particular course as part of his/her development, BSP covers the associated costs. Director development sessions are also held regularly and scheduled with Committee meetings. New Directors are encouraged to undertake the Australian Institute of Company Directors’ Effective Directors course. R E M U N E R A T I O N 41 4 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | C O R P O R AT E G O V E R N A N C E Review of Board Performance BSP has a process for periodically evaluating the performance of the Board, its Committees and individual Directors. This review is done annually with oversight from the RNC and is a process by which the Board regularly assesses its own performance in meeting its responsibilities. It also includes an assessment of the contribution of each individual Director. The Board is aware of the need: a) to continually identify areas for improvement; b) to ensure that it meets the highest standards of corporate governance; and c) for the Board and each Director to make an appropriate contribution to the Group’s objective of providing value to all its stakeholders. This performance review is facilitated by an external consultant. Executive and Senior Management BSP’s Executive and Senior Management enter into employment contracts with BSP which set out key information such as their terms of employment, position, duties, reporting lines, remuneration, and termination arrangements. The Board with the assistance of the RNC, sets the performance targets for the GCEO and other members of Executive and Senior Management under BSP’s employee incentive arrangements set out in their respective employment contracts. Summarised details of these employee incentive arrangements are presented in pages 50–57 of BSP’s 2024 Annual Report. These incentive arrangements are administered by the RNC, with performance against the relevant targets assessed periodically throughout the year and a formal evaluation is undertaken annually with the last assessment undertaken in 2024. Gender Diversity As at 31 December 2024, BSP currently has ten directors, three of whom are women consistent with ASX Recommendation 1.5, to have at least 30% of its board comprising female directors. A summary of the gender spread within BSP as at 31 December 2024 is set out below: Category Female Male Total Board Members 3 7 10 Group Executive Management1 4 9 13 Senior Management2 185 195 380 Middle Management 330 271 601 Non-Management 1,830 1,789 3,619 Grand Total (excluding Board) 2,349 2,264 4,613 The Board remains committed in promoting gender diversity across all levels of the Company and a copy of BSP’s Equality, Diversity and Inclusion Policy is available on the Company’s website.3 A Balanced Approach BSP believes in the fair remuneration of all its employees from Directors through to Management and Staff. As its Executive and Senior Management teams are responsible for driving the Company’s vision, reporting to the Board and ensuring operational excellence, competitive remuneration packages are used to retain and attract the best talent available. Remuneration for Non‑Executive Directors is assessed giving regard to a number of factors including the current fee cap and performance and contribution of each individual Non‑Executive Director, with all these benchmarked against that of similar industry participants. The Remuneration Report in pages 50–57 of the 2024 Annual Report, gives a summary of the remuneration policy adopted by BSP. 1. Group Executive Management in this case refers to all of the GCEO’s direct reports (excluding his Executive Assistant and Chief of Staff). This includes General Managers of each of BSP’s Strategic Business Units and the Managing Director of BSP Life Fiji. 2. Senior Management in this case refers to all Heads of Business Units and direct reports of those identified as Executive Management. 3. The Equality, Diversity and Inclusion Policy is available at bsp-com-pg-agfud6dwcvh6hae9.a01.azurefd.net/uploads/2025/03/Group- Equality-Diversity-Inclusion-Policy.pdf R E M U N E R A T I O N C O N T I N U E D Approach to Risk Management The Group’s risk management activities are aligned to the achievement of the Group’s objectives, goals and strategy. In consultation with the Executive Committee, the Board determines BSP’s risk appetite and risk tolerance, which is reflected in the Group Risk Appetite Statement. These benchmarks are used in the risk identification, analysis and risk evaluation processes. The Board has delegated to the BRC the responsibility for annually reviewing BSP’s risk management framework. This framework requires ongoing risk identification and management across all areas and functions within the Group. It is a requirement that the Executive Committee annually review the top Group enterprise wide risks and present the report and remediation plan to BRC for recommendation to the Board for approval. This review allows the Group to reassess the top inherent risks in the business and provides Senior Management the opportunity to review processes to ensure adequate controls and resources are in place to manage these risks. It also provides the Board a high-level view of the risks threatening the business objectives of BSP Group. Risk Management Roles and Responsibilities The overall responsibility for risk management lies with the Board and it accepts responsibility for ensuring it has a clear understanding of the types of risks inherent in the Group’s activities. BSP implements a formal system of financial and operational delegation from the Board to the GCEO and from the GCEO to General Managers. These delegations reflect the Group’s risk appetite and cascade 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 risk registers, determines the approval/ control authorities/limits. The Board undertakes an annual review of the Group’s Enterprise Wide 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 BRC responsibility for overview of loss control and for overseeing the risk management function. The BRC 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. Group Environmental, Social & Governance (ESG) Policy In 2024, BSP established an ESG Steering Committee to oversee the implementation of its ESG program across the Group. The Group ESG Policy was adopted by the Board and the following Material ESG Topics were adopted: • Financial Health • Gender Based Violence • Workforce Capability • ESG Corporate Governance • Climate Vulnerability BSP’s Sustainability Report on pages 16–23 of the 2024 Annual Report has more information on BSP’s compliance with the Environmental and Social Reporting obligations pursuant to Standards 15, 16 and 17 of the PNGX Corporate Governance Code. R I S K M A N A G E M E N T A N D C O M P L I A N C E 4 3 4 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | C O R P O R AT E G O V E R N A N C E Financial Statements and Corporate Reports The BACC reviews the half-year and full-year 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 judgemental 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. BSP does not release its half-year accounts unless they have been reviewed by its external auditors. The full-year financial statements are not released unless they have been audited by the external auditors and approved by both the BACC and the Board. All other market announcements and corporate reports are reviewed and approved by the Disclosure Committee (DC) prior to lodgement with the respective stock exchanges. Management Assurance The Board is provided with regular reports about BSP’s financial condition and operating performance. Annually, the GCEO and the GCFO certify to the Board that: • in their opinion, the financial records of the Group have been properly 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 Heads provide monthly reports regarding the following: • assessment and documentation of the risks and internal control procedures in the respective Strategic Business Units; • any changes in business, operations and computer systems and the risks that may arise from those changes have been identified; • appropriateness and operating efficiency of the risk management and internal compliance and control systems; and • identification and remedial action (if required) of any weaknesses in the risk management and internal compliance and control systems; 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 Chair and the other Non‑Executive Directors have the opportunity to meet with the GCEO, 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. A S S U R A N C E A N D C O N T R O L External Audit The BACC 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 BPNG Prudential Standard 7/2005 – External Auditors, the signing partner in the external audit firm must be rotated every five years. The BACC 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 Prudential Standards 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 BACC or the external auditors believe should be discussed privately. The external auditor attends meetings of the BACC at which the external audit, half yearly and annual reviews are agenda items. The BACC ensures that significant findings and recommendations made by the external auditors are promptly received and discussed, 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 while also being engaged for services to conduct BSP’s annual audit and related services. Services related to the preparation of BSP’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. BSP’s external audit firm is currently PricewaterhouseCoopers (PwC). Representatives of PwC will attend the next Annual General Meeting in May 2025 and be available to answer Shareholder questions regarding the audit. Internal Audit BSP has an internal audit function. The BACC approves the appointment of the Head of Internal Audit, who functionally reports to the BACC, upon Management’s recommendation. The scope of work carried out by the Internal Audit function stems from the annual Internal Audit Plan, which the BACC reviews and approves. 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 BACC meets separately with the internal auditors to discuss any matters that the BACC, or the internal auditors, believe should be discussed privately. The Head of Internal Audit has direct access to the BACC and to the full Board. The BACC 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 BACC reviews the effectiveness of BSP’s systems for monitoring compliance with all legal and regulatory obligations, including AML obligations, in all the jurisdictions within which BSP operates. It also reviews the results of Management’s investigations into fraudulent activity and compliance breaches. The BACC obtains regular updates from Management regarding compliance matters, and satisfies itself that all regulatory compliance matters have been considered in the preparation of the financial statements. The Committee also undertakes reviews of findings from any examinations undertaken by regulatory agencies. The Chair of the BACC has the right to approach a regulator directly in the event of a prudential issue arising. The Bank and the Group, to the best of the Director’s knowledge, has not engaged in any activities which materially contravene laws and regulations in relevant jurisdictions. 4 5 4 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | C O R P O R AT E G O V E R N A N C E Core Values BSP’s comprehensive corporate governance framework is underpinned by its core values: • We Care – We respect, value and empower each other, our customers, stakeholders, and communities we serve, embracing diversity and fostering resilience in everything we do. • We Aspire – We strive for excellence and continuous improvement in everything we do, being committed to honesty, accountability and integrity. • We Grow – We work as a team with and for the wellbeing and prosperity of each other, our customers, stakeholders, and communities we serve, progressing and thriving together. This is encompassed in the Group’s Statement of Vision, Mission and Values, which is approved by the Board and acts as a guide for all employees in the day-to-day performance of their individual functions within the Group. Code of Conduct BSP requires Directors and employees at all levels to observe the highest standards of ethical behaviour when undertaking business. To this end, the Board has adopted a Group-wide Code of Conduct for Directors, Management and all Staff whilst further stipulating that each Director comply with the Code. To ensure the ongoing maintenance of high standards of corporate behaviour, the Board encourages Senior Management to periodically issue staff communications 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. Training on the Code is carried out annually across the Group and all Directors, Management and Staff are required to submit declarations attesting full understanding of and compliance with the Code. Reports of breaches of the Code are regularly provided to Senior Management and noted at Board Risk Committee (BRC) meetings. C U LT U R E A N D C O N D U C T Whistleblowing 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 Fraud and Whistleblower 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 and procedures; • sexual harassment; • abuse of delegated authorities; and • misuse of Group assets. Similar to the Code of Conduct, breaches or material incidents reported under the Fraud and Whistleblower Policy are reported during BRC meetings. Anti-Bribery and Anti-Corruption BSP has a zero tolerance approach to bribery and corruption and this is reinforced by its Anti-Bribery and Anti-Corruption Policies. BSP recognises that acts of bribery and corruption are detrimental to the growth and prosperity of our business, the individuals and organisations we affiliate with and the communities that we operate in. As a business, BSP is mindful of the consequences of bribery and corruption, which may result in both financial and reputational loss alongside imposition of regulatory sanctions. Compliance with the policies by Management and Staff remains closely monitored with regular updates to Management and the BACC on breaches and material incidents reported under the policies. Restrictions on trading Group Directors and Management are subject to trading restrictions set out in the Papua New Guinea Capital Market Act 2015 for buying, selling or subscribing for securities in the Group if they are in possession of inside information. This includes information which is not generally available, and, if it were generally available, a reasonable person would expect it to have a material effect on the price or value of BSP securities. Directors and Management may only trade in the securities of the Group, subject to the foregoing insider trading restrictions, during each of the trading windows specified in BSP’s Securities Dealing Policy. Senior Management and other restricted persons are required to obtain approval from the GCEO ahead of trading, who in turn will keep the Chair of the Board appraised of management activities. Directors are also subject to similar restrictions and must seek approval from the Chair prior to conducting any trades. Other actions such as hedging, margin lending and speculative short term trading are also prohibited under the policy. 47 4 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | C O R P O R AT E G O V E R N A N C E BSP’s continuous disclosure regime set by its Continuous Disclosure Policy1 is fundamental to the rights of Shareholders to receive information concerning their securities. An important aspect of BSP’s approach to shareholder communication is to comply with the continuous disclosure regime and to implement a best practice disclosure policy. The Board has delegated the responsibility of reviewing and approving market announcements to the Disclosure Committee (DC). The Disclosure Committee has a process for review and approval of market announcements to the respective exchanges for release to market. After confirmation of release to the market, all market announcements are immediately posted to BSP’s website. As at 31 December 2024, all market announcements made by BSP since 2018 are currently available on the website.2 Where BSP provides financial results’ briefings to analysts or the media, these briefings are published on the BSP 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. BSP’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 Securities Dealing Policy.3 BSP commits to dealing fairly, transparently and openly with both current and prospective Shareholders using available channels and technologies to communicate widely and promptly. Information about the Company including an overview, our history, Board and Management are available on the website. Our website also contains information on corporate governance including all of BSP’s charters and policies. BSP is dedicated to facilitating participation in Shareholder meetings and dealing promptly with shareholder enquiries. Our Shareholder Communications Policy focuses on compliance with disclosure obligations, whilst aspiring to be at the forefront of best practice in disclosure. Our approach for communicating with Shareholders is to communicate concisely and accurately: • the BSP strategy; • how we implement that strategy; and • the financial results consequent upon our strategy and its implementation. To facilitate effective communication between BSP, its shareholders, potential investors, analysts and other financial markets participants, BSP conducts periodic market briefings which include half and full year results announcements. BSP also hosts events and attends conferences and forums regularly. Stakeholders are given access to BSP Directors and Senior Management at these events and any presentation material provided at these events are released as announcements to the market prior to commencement and subsequently uploaded to BSP’s website. The Company’s Annual General Meeting is another shareholder forum used to communicate financial performance and strategies, in line with disclosure policies. BSP gives great consideration to its shareholders, and hosts its Annual General Meeting at a central location that is accessible and can cater for large audiences. Significant effort is made to ensure shareholders can participate and a meeting guide with sufficient information on how to join, vote and participate accompanies the notice of meeting. It is noted that the thresholds at which shareholders may demand a poll are low and provide assurance to shareholders wishing to invoke the “one security one vote” principle and wishing to have substantial resolutions decided by a poll. BSP gives Shareholders the option to send and receive communications from BSP and its share registries electronically. In recent years, we have increased efforts to go paperless and continue to encourage shareholders to provide email addresses by which they can receive digital copies of all shareholder communications. C O N T I N U O U S D I S C L O S U R E 1. The Continuous Disclosure Policy is available at bsp-com-pg-agfud6dwcvh6hae9.a01.azurefd.net/uploads/2025/03/Continuous- Disclosure-Policy.pdf 2. Market announcements are available at bsp.com.pg/about/investors/market-announcements/ 3. The Securities Dealing Policy is available at bsp-com-pg-agfud6dwcvh6hae9.a01.azurefd.net/uploads/2025/03/Securities-Dealing-Policy.pdf C O M M I T M E N T T O S H A R E H O L D E R S This statement has been approved by the Board of BSP Financial Group Limited and is current as at 31 December 2024. BSP’s Appendix 4G (a checklist that cross references the disclosures in this Statement to the ASX Corporate Governance Principles and Recommendations) is available in the Corporate Governance section of the BSP website. Before publication of BSP’s 2024 Annual Report, the Board received a joint declaration from the GCEO and the GCFO that: • In their opinion the financial records of BSP have been properly maintained in accordance with regulatory requirements; and • In their opinion the financial statements and notes comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the Group. Their opinion was formed based on a sound system of risk management and internal controls, which is operating effectively. BSP does not comply with ASX Recommendation 6.4 because to do so would be contrary to the requirements of the PNG Companies Act 1997. The PNG Companies Act 1997 provides, in summary as follows: • Section 105 and Schedule 2 of the Companies Act 1997 requires voting at a meeting of shareholders to be by voice or show of hands (as determined by the Chairman), unless a poll is demanded; • A poll may be determined at a meeting of shareholders by not less than five shareholders entitled to vote at the meeting or by shareholders representing not less than 10% of the total voting rights of all shareholders entitled to vote at the meeting. C O M P L I A N C E W I T H A S X A N D P N G X C O R P O R A T E G O V E R N A N C E R E C O M M E N D A T I O N S 4 9 4 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | C O R P O R AT E G O V E R N A N C E For the Year Ended 31 December 2024 R E M U N E R A T I O N R E P O R T 1.0 Introduction The aim of the Remuneration Report is to provide details that the Board believes are essential for shareholders to understand BSP Financial Group Limited’s remuneration framework. This is intended to deliver specific operating financial and non-financial outcomes. There is no statutory requirement for Remuneration Reporting under International Financial Reporting Standards (IFRS) and as a PNG incorporated entity, BSP is not required to have this remuneration report audited. 2.0 Message from the Remuneration and Nominations Committee Chairman I am delighted to present the 2024 Remuneration Report for BSP Financial Group Limited (BSP) on behalf of the Remuneration and Nominations Committee (RNC) and the Board. The Report focuses on the remuneration structure and outcomes for our Key Management Personnel (KMP) for BSP, which includes Non-Executive Directors and Group Executives. Group Executives are BSP employees who have the authority and responsibility to plan, direct, and oversee BSP’s operations. Our Remuneration Strategy At BSP, we view our people as our most important asset. The objective of our remuneration strategy is to ensure that we can attract and retain talented employees by offering market competitive remuneration, with variable remuneration outcomes aligned with the financial performance of BSP. Section 4 of this Report provides a detailed overview of our fixed and variable remuneration structure, including any additional benefits. Governance is a fundamental part of our remuneration culture, with the Board approving any executive remuneration packages that are endorsed by the RNC in accordance within BSP remuneration guidelines. Further information on our governance framework can be found in Section 7 of this Report. BSP’s Non-Executive Directors are remunerated on a fixed basis within an aggregate Directors’ fee pool. Directors are not paid any retirement or superannuation benefits, nor do they participate in any employee incentive schemes or share option plans. Further information on our approach to Non-Executive Director remuneration can be found in Section 8 of this Report. Short Term Incentive (STI) Outcomes in 2024 All BSP Group employees are eligible to receive performance-based short-term incentives in line with approved comprehensive operational and financial key performance indicators (KPIs) of the STI, plan as outlined in Section 5.1 of this Report. Long Term Incentive (LTI) Outcomes in FY2024 For the 2023–2024 LTI, the Earnings per Share (EPS) performance measure was not met. Assessment of the LTI targets excluded the K95m settlement with the Internal Revenue Commission (IRC) in relation to the Additional Company Tax (ACT) levied in 2022. This is consistent with the exclusion of the ACT of K190 million levied in 2022 in calculating the EPS performance in 2022 for the 2021–22 LTI. The Board however exercised its discretion and approved vesting at 100% for the 2023–2024 plan in acknowledgement of the strong operating performance of the Bank in 2024, including the execution of the Modernising for Growth program. Further details about the LTI plan structure, including payment outcomes for KMP roles can be found in Section 5.2 of this report. I hope you find this Remuneration Report informative. On behalf of the Remuneration and Nomination Committee I would also like to thank you for your support as a BSP shareholder. Faamausili Dr. Matagialofi Lua’iufi Chair BSP Board Remuneration and Nominations Committee 3.0 Key Management Personnel In 2024, KMP comprised the GCEO, Group Executives and Non-Executive Directors as set out in the table below. KMP is defined as those persons having authority and responsibility for planning, directing and controlling the activities of an entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. In August 2024, BSP undertook a reorganisation to enhance our leadership capability and optimise talent as part of career progression to drive innovation and success into the future. Name Position KMP Term Board Members Robert George Bradshaw Chairman Full year Symon G. Brewis-Weston Director Full year Faamausili Dr. Matagialofi Lua’iufi Director Full year Stuart A. Davis Director Full year Priscilla Kevin Director Full year Frank D. Bouraga Director Full year Patricia F. Taureka-Seruvatu Director Full year Ian A. Tarutia Director Full year Stephen C. Beach1 Director Part year Arthur Sam2 Director Part year Executives Mark T. Robinson Group Chief Executive Officer Full year Ronesh Dayal3 Group General Manager Retail Banking Full year Nuni Kulu Group Chief Operating Officer Full year Michael Hallinan4 Group Chief Risk Officer Full year Peter Beswick5 Deputy Group Chief Executive Officer Full year Rohan George Group General Manager Treasury & Markets Full year Hari Rabura6 Group General Manager Corporate Affairs & Community Full year Daniel Faunt7 Group General Manager Corporate Banking Full Year Vandhna Narayan8 Group Chief Compliance Officer & Company Secretary Full Year Richard Nicholls Group Chief Information Officer Full year Maryann Lameko-Vaai9 Acting Group Chief Financial Officer Full Year Paul Black10 Group General Manager Pacific Markets Part year Laurentia Laracy11 Company Secretary Part year 1. Stephen C. Beach, appointed 8 March 2024. 2. Arthur Sam, resigned 21 February 2024. 3. Ronesh Dayal, appointed 19 August 2024, having previously served as the Group Chief Financial Officer. 4. Michael Hallinan, appointed 27 March 2023 contracted to serve as Group Chief Risk Officer. 5. Peter Beswick, appointed 19 August 2024, having previously served as the Group General Manager Corporate Banking. 6. Hari Rabura, appointed 19 August 2024, having previously served as the Group General Manager People & Culture. 7. Daniel Faunt, appointed 19 August 2024, having previously served as the Group General Manager Retail Banking. 8. Vandhna Narayan, appointed 19 October 2024 as Company Secretary in addition to her role as the Group Chief Compliance Officer. 9. Maryann Lameko-Vaai, appointed 19 August 2024, having previously served as the General Manager Pacific Markets. 10. Paul Black, appointed 19 August 2024. 11. Laurentia Laracy, appointed 15 May 2024 and resigned 18 October 2024. 51 5 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | R E M U N E R AT I O N R E P O R T R E M U N E R A T I O N R E P O R T C O N T I N U E D For the Year Ended 31 December 2024 4.0 Executive Remuneration Framework BSP’s remuneration policy for Executives is comprised of a fixed component and an at risk component constituting a combination of short term and long term incentives. Remuneration packages are reviewed by the RNC and recommended for approval by the Board. Fixed remuneration is reviewed annually taking into account the nature of the role, comparable market pay levels, and individual and business performance. Executives who serve as Directors of subsidiaries of BSP receive no fees for their service as a Director. Executive Remuneration – Non-Statutory Disclosure All amounts are expressed in K’000 Short- term incentive Value of benefits Long-term incentive Leave encash- ment Total Executives Year Salary Mark T Robinson Group Chief Executive Officer 2024 4,316 3,828 44 1,351 – 9,539 2023 3,090 2,686 38 – – 5,814 Ronesh Dayal Group General Manager Retail 2024 1,616 811 169 487 162 3,245 2023 1,497 354 159 233 – 2,243 Michael Hallinan Group Chief Risk Officer 2024 1,602 413 – – – 2,015 2023 1,096 263 – – – 1,359 Peter Beswick Deputy Group Chief Executive Officer 2024 1,645 702 115 527 – 2,989 2023 1,361 349 114 233 – 2,057 Rohan George Group General Manager Treasury & Markets 2024 1,183 683 59 410 75 2,410 2023 1,250 301 59 196 – 1,806 Hari Rabura Group General Manager Corporate Affairs & Community 2024 1,071 215 162 323 71 1,842 2023 1,001 224 164 154 – 1,543 Daniel Faunt Group General Manager Corporate Banking 2024 1,616 568 217 487 – 2,888 2023 1,361 303 204 233 – 2,101 Vandhna Narayan Group Chief Compliance Officer & Company Secretary 2024 1,415 748 33 449 – 2,645 2023 1,127 303 33 202 – 1,665 Richard Nicholls Group Chief Information Officer 2024 1,476 296 226 444 – 2,442 2023 1,219 292 52 213 – 1,776 Nuni Kulu Group Chief Operating Officer 2024 1,301 588 119 392 48 2,448 2023 1,090 286 119 188 – 1,683 Maryann Lameko-Vaai Acting Group Chief Financial Officer 2024 1,271 383 179 383 – 2,216 2023 1,078 303 156 183 – 1,720 Laurentia Laracy Company Secretary 2024 709 – 14 – 46 769 2023 – – – – – – Paul Black Group General Manager Pacific Markets 2024 1,226 503 107 378 76 2,290 2023 – – – – – – • Remuneration reflected in the table above relates to the period the staff member was in a KMP role. Contracts are in AUD and PGK equivalent will vary based on exchange rate. • The Short Term Incentive represents the total award under the 2024 plan with 50% of the award paid in March 2025 and the remaining 50% deferred for 12 months. 4.1 Fixed remuneration BSP’s fixed remuneration comprises cash salary, salary sacrifice for citizen staff, employer superannuation contributions for citizen staff and contractual benefits. The purpose of fixed pay is to attract and retain employees by paying market competitive pay for the role, and for skills and experience required by the business. This may include salary, fixed pay allowance housing benefits and other cash allowances in accordance with local market practices. These payments are fixed and do not vary with performance. 4.2 Short term incentive STIs are incentives that BSP awards to staff at a given time of up to one year. BSP refers to the STI as the Annual Performance based bonus scheme. The scheme rewards employees for performance and is paid in March the following year after annual accounts are released. BSP reviewed its Short Term Incentive structure against market practice in the banking sector. As a result of the review, effective for the FY24 plan, the maximum opportunity as a percentage of base salary increased from 30% to 50% for Senior Executives. BSP has introduced STI deferral whereby 50% of the actual payment made is deferred for a period of 12 months. If an executive resigns or is terminated for poor performance prior to the end of the 12 month period, the deferred component is forfeited. If an executive separates for reason of redundancy, genuine age related retirement, or Death or Total & Permanent Disablement, they will remain eligible for the deferral payment. The incentive is determined by the employees’ individual performance and the overall BSP Group performance, based on the achievement of Key Performance Indicators (KPIs). KPIs include: i. Net Profit After Tax (NPAT) budget, ii. Individual Strategic Business Unit (SBU) performance including achieving SBU budget, iii. Implementation of critical strategic imperatives, iv. Important SBU performance matrices, and specific individual KPIs such as promoting vision and values, staff training, customer survey outcomes and staff engagement survey feedback. 4.3 Benefits These cover accommodation, airfares, motor vehicle, school fees, club fees and club memberships based on industry wide practice and amounts vary annually depending on market rates. 4.4 Long Term Incentive Plan BSP’s LTI plan is designed to align executive compensation to shareholder interests and to reward Executives, Senior Managers and high potential employees such as Leadership and Management Development Program participants for their contribution to long-term financial results that drive shareholder value. The LTI assists in the recruitment, retention and motivation of Executives, Senior Managers and Critical and High Performing employees of the BSP Group. The LTI is a two (2) year performance based plan which commences on 1 January and ends on 31 December of the second year. BSP reviewed its Long Term Incentive structure against market practice in the banking sector. As a result of the review, the award as a percentage of base salary for the 2025 LTI plan increased from 30% to 55% for the GCEO and for other senior executives a mix of 30% to 40% of fixed remuneration. Key features of the FY2025 LTI, performance period 1 January 2024 to 31 December 2025, includes: i. Group Earnings Per Share (EPS) performance determines the quantity of Performance Rights that will vest per the table below. ii. The vesting period is two years’ based on BSP’s financial year cycle. iii. Any Performance Rights that vest are fully settled in cash and subject to taxation. The LTI plan does not confer any right to a BSP share or dividend for plan participants. iv. The value of each cash based Performance Right granted is determined by reference to a volume weighted average share price on the PNGX at the start of the plan period. Any Performance Rights that vest, subject to EPS performance, reflect a volume weighted average share price at the end of the performance period. 5 3 5 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | R E M U N E R AT I O N R E P O R T R E M U N E R A T I O N R E P O R T C O N T I N U E D For the Year Ended 31 December 2024 4.4 Long Term Incentive (LTI) Plan (continued) Number Approved EPS Hurdles EPS target to be achieved Target NPAT Percentage of Performance Rights to exercise 1 107.5%> As recommended by RNC and approved by Board each LTIP cycle As recommended by RNC and approved by Board each LTIP cycle 150% of Performance rights 2 102.5%> 100% of Performance rights 3 97.5%> 50% of Performance rights Participants are personally responsible for any income tax liability in respect of payments made under the LTI plan. If a participant separates from BSP prior to plan vesting for reasons of Genuine Age Related Retirement, Redundancy, Death or Total & Permanent Disablement, any vesting awards would be made after Board approval of the plan outcome, incorporating a pro-rata treatment for time employed during the plan performance period. If a participant resigns, or their employment is terminated on disciplinary grounds prior to the LTI payment, they are ineligible for any payment under the plan. 4.5 Performance based Performance based benefits are awarded to employees when Key Performance Indicators (KPI) are met. This is inclusive of the following: i. Annual Salary Review In line with the performance bonus rating scale above, BSP also conducts annual salary reviews each year. Staff salaries are reviewed and adjusted based on the performance rating scored in the prior year’s performance review and the Consumer Price Index rate for respective countries. ii. Staff Loans – National Staff Home Ownership Scheme and Unsecured Personal Loans BSP offers its staff concessional lending rates to citizen staff who have satisfactorily completed the probation period and have formally been appointed permanent employee status. iii. Leadership and Management Development Program (LMDP) BSP LMDP is a three year program derived specifically for high potential employees who have been identified as possible successors to senior and executive management roles. Participants are nominated by their SBU GMs and approved by the Group CEO. 4.6 Non-performance based Non-Performance based benefits are not determined by the staff member’s performance and are applicable to all staff. These benefits include the following: i. Medical Cover for all staff ii. Life Insurance iii. Superannuation iv. Specialist allowances for critical roles 4.7 Retention Plan As part of BSP’s retention strategy, BSP has developed a number of initiatives to ensure staff occupying critical roles and high potential employees are better rewarded in order to retain their services for BSP for the long term. These initiatives include: i. Short and Long-Term Incentive Plans ii. Leadership and Management Development Program (LMDP) iii. National Staff Home Ownership Scheme 5.0 Linking performance and reward outcomes – Variable Remuneration The Group’s policy is to pay any executive STI and LTI outcomes subsequent to the full audit of the financial statements. Reward outcomes are detailed in Section 5.1 and 5.2 respectively. 5.1 Short Term Incentive (STI) Outcomes The Group’s financial performance is summarised in the table below together with its relationship to the aggregate amount of Short Term Incentives (STI) paid to Executives. This section discloses STI for the various years relative to the financial performance for those years. STI outcomes in 2024 were based on NPAT achievement, in addition to other group, divisional and individual performance measures. 5.1 Short Term Incentive (STI) Outcome (continued) FY20 FY21 FY22 FY23 FY24 Net Profit After Tax (K’000) 806,218 1,075,218 1,135,5381 1,099,2152 942,1113 Earnings per Share (toea) 172.6 230.1 231.4 235.3 201.6 Cost to income ratio 37.4% 37.5% 38.1% 38.5% 42.5% The table below shows the STI outcomes for FY24. Name Title STI Awarded K’000 STI as % of Gross Base Maximum STI K’000 Actual STI % of Maximum STI Mark T. Robinson Group Chief Executive Officer 3,828 85% 3,828 100% Peter Beswick Deputy Group Chief Executive Officer 702 40% 878 80% Maryann Lameko-Vaai Acting Group Chief Financial Officer 383 30% 638 60% Nuni Kulu Group Chief Operating Officer 588 45% 653 90% Ronesh Dayal Group General Manager Retail 811 50% 811 100% Vandhna Narayan Group Chief Compliance Officer 748 50% 748 100% Rohan George Group General Manager Treasury & Markets 683 50% 683 100% Hari Rabura Group General Manager Corporate Affairs & Community 215 20% 538 40% Daniel Faunt Group General Manager Corporate Banking 568 35% 811 70% Richard Nicholls Group Chief Information Officer 296 20% 741 40% Paul Black Group General Manager Pacific Markets 503 40% 629 80% Michael Hallinan Group Chief Risk Officer 413 30% 689 60% 5.2 2024 LTI Outcomes The 2024 LTI reward matrix was approved in November 2022. The plan uses the earnings per share (EPS) as a proxy for BSP’s share price as a determinant for achieving long term value for shareholders. Vesting of the LTI rights is subject to achievement of the target EPS for 2024, which is calculated using the 2024 Group NPAT budget as the baseline with payments based on specified percentages of maximum rights, if 2024 EPS outcome is within the payment band as detailed in the table below. 2022 Hurdles on EPS EPS target to achieve Target NPAT K’m Percentage of Performance rights to exercise 107.5%> 252.2 1,178.3 150% 102.5%> 240.47 1,123.5 100% 97.5%> 228.74 1,068.7 50% FY20 FY21 FY22 FY23 FY24 LTI vesting (%) 100% 0% 150% 50% 100% 1. Underlying NPAT on which STI was assessed, excludes one-off tax credits of K135 million and K190 million Additional Company Tax expense. Further, the above excludes K4.0 million credit, reflecting the modified retrospective transition to the new accounting standard IFRS 17 (Insurance contracts), which came into effect on 1 January 2023. 2. Underlying NPAT on which STI was assessed, excludes a tax expense of K209 million as a consequence of the change in corporate income tax rate from 30% to 45%. 3. Underlying NPAT on which STI was assessed, excludes of K95 million being the settlement of the additional company tax with the government, consistent with the treatment in FY22 when the tax was levied. 5 5 5 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | R E M U N E R AT I O N R E P O R T R E M U N E R A T I O N R E P O R T C O N T I N U E D For the Year Ended 31 December 2024 5.2 2024 LTI Outcomes (continued) LTI outcomes were calculated based on Group profits of K942 million1 and EPS was recorded at 201.64 toea, below the EPS and NPAT hurdles set by the Board. The Board however exercised its discretion and approved vesting at 100% for the 2023–2024 plan in acknowledgement of the strong operating performance of the Group in 2024, including the execution of the Modernising for Growth program. The table below shows the LTI outcomes for FY24. Name Title LTI Awarded K’000 LTI as % of Gross Base Mark T. Robinson Group Chief Executive Officer 1,351 30% Peter Beswick Deputy Group Chief Executive Officer 527 30% Maryann Lameko-Vaai Acting Group Chief Financial Officer 383 30% Nuni Kulu Group Chief Operating Officer 392 30% Ronesh Dayal Group General Manager Retail 487 30% Vandhna Narayan Group Chief Compliance Officer 449 30% Rohan George Group General Manager Treasury & Markets 410 30% Hari Rabura Group General Manager Corporate Affairs & Community 323 30% Daniel Faunt Group General Manager Corporate Banking 487 30% Richard Nicholls Group Chief Information Officer 444 30% Paul Black Group General Manager Pacific Markets 378 30% Michael Hallinan Group Chief Risk Officer – – 6.0 Employment Agreements KMP Contracts Contracts for Senior Management and Executives are for a three year term. Initial contracts are open ended and subject to 3 months notice based on performance and business requirements. GCEO employment agreement The Group CEO’s contractual term is agreed upon between the Board and the employee. The Board approves the GCEO’s employment contract which has a six month notice period. 7.0 Remuneration Policy and Governance Framework BSP recognises that staff are the most valuable asset of BSP. The Group ensures that remuneration and benefits are fair and competitive in the market. The remuneration strategy is supported by objectives applicable to all employees and includes: i. Business results, including performance against strategic objectives and metrics in the Group’s risk assessment/position and compliance with AML/CTF regulations; ii. Performance against the Group’s strategic objectives; iii. Adherence to the Group’s values, business principles, Group-risk related policies and procedures and international standards; iv. Individual performance; and v. Local market position and practice. The above key features of the remuneration framework enables the group to also achieve alignment between risk, performance and reward. 1. For LTI outcome calculations, the NPAT of K1.04 billion was adjusted to exclude K95 million settlement of the Additional Company Tax. 7.1 Remuneration and Nominations Committee (RNC) The RNC assists BSP in fulfilling its oversight responsibilities regarding the remuneration, succession planning and the board recruitment of Directors, Executives and other BSP employees. The responsibilities of the RNC are: • to oversee the selection and appointment of a Group CEO, and setting 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 CEO, to identify and maintain a clear succession plan for the Executive Management ensuring an appropriate mix of skills, diversity 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, diversity and experience necessary to fulfil its responsibilities to shareholders while maintaining a world class Corporate Governance regime. The RNC is comprised of three Non-Executive Directors. The Chairman of the RNC must be an independent Director, 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 forms part of the Board’s performance review. 8.0 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. Directors are also 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. Non-Executive Directors are not paid any retirement or superannuation benefits, nor do they participate in any share or share option programs or the employee incentive schemes. 8.1 Fee pool BSP Non-Executive Directors are remunerated on a fixed basis within an aggregate Directors “Fee Pool” approved periodically by Shareholders. Shareholders are required to approve any change to this aggregate amount. The current Shareholder approved fee pool is PGK6.0 million approved at the May 2023 Annual General Meeting effective 1 January 2024. Total payments to directors for the 2024 financial year within the fee pool were as follows. All amounts are expressed in K’000 Name of Director Base Fee Chair- person BACC Fee BRC Fee RNC Fee Bank Total Sub. Fees Total Fees Robert George Bradshaw – 943 – – – 943 – 943 Symon G. Brewis‑Weston 472 – – 26 26 524 – 524 Faamausili Dr. Matagialofi Lua’iufi 472 – – – 39 511 120 631 Stuart A. Davis 472 – 26 39 – 537 – 537 Priscilla Kevin 472 – – 26 – 498 9 507 Frank D. Bouraga 472 – 33 14 – 518 3 522 Patricia F. Taureka‑Seruvatu 472 – – 26 20 518 – 518 Ian A. Tarutia 472 – 28 25 – 524 – 525 Stephen C. Beach 344 – 28 28 – 399 – 400 Arthur Sam 128 – – – – 128 – 128 Total 3,776 943 114 184 86 5,100 133 5,233 5 7 5 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | R E M U N E R AT I O N R E P O R T F I N A N C I A L S T A T E M E N T S 31 December 2024 58 F I N A N C I A L S TAT E M E N T S 60 Directors’ Report 62 Statements of Comprehensive Income 63 Statements of Financial Position 64 Statements of Changes in Shareholders’ Equity 65 Statements of Cash Flows 66 N O T E S T O T H E F I N A N C I A L S TAT E M E N T S 66 1. Financial Statements Preparation 69 Financial Performance 69 2. Segment Reporting 70 3. Net Interest Income 71 4. Non-Interest Income 72 5. Operating Expenses 73 6. Impairment of Financial Assets 74 7. Income Tax 76 8. Earnings per Ordinary Share 76 9. Reconciliation of Operating Cash Flow 77 Financial Instruments: Financial Assets 79 10. Cash and Operating Balances with Central Banks 79 11. Amounts Due from Other Banks 79 12. Treasury and Central Bank Bills 80 13. Cash Reserve Requirement with Central Banks 80 14. Other Financial Assets 81 15. Loans and Receivables from Customers 86 16. Other Assets 87 Financial Instruments: Financial Liabilities 88 17. Amounts Due to Other Banks 88 18. Customer Deposits 88 19. Other Liabilities 89 20. Contingent Liabilities and Commitments 90 Risk Management 90 21. Risk Management Framework and Controls 90 22. Credit Risk and Asset Quality 99 23. Liquidity Risk 101 24. Operational Risk 101 25. Foreign Exchange Risk 103 26. Interest Rate Risk 105 27. Fair Values of Financial and Non‑Financial Assets and Liabilities 107 Capital and Dividends 107 28. Ordinary Shares 107 29. Retained Earnings and Other Reserves 109 30. Capital Adequacy 110 Group Structure 110 31. Insurance 122 32. Investment in Subsidiaries 123 33. Investment in Joint Ventures 124 Other 124 34. Fiduciary Activities 124 35. Related Party Transactions 125 36. Directors and Executive Remuneration 127 37. Events Occurring After Balance Sheet Date 128 38. Amalgamation of BSP Finance PNG Limited 128 39. Asset held for sale 128 40. Remuneration of Auditor 129 I N D E P E N D E N T A U D I T O R ’ S R E P O R T BSP Financial Group Limited and subsidiaries ARBN 649 704 656 5 8 | B S P F I N A N C I A L G R O U P L I M I T E D 5 9 A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S For the Year Ended 31 December 2024 D I R E C T O R S ’ R E P O R T The Directors take pleasure in presenting the Financial Statements of the BSP Financial Group Limited and its subsidiaries (Bank and the Group) for the year ended 31 December 2024. In order to comply with the provisions of the Companies Act 1997, the Directors report as follows: Principal activities The principal activity of the BSP Financial Group Limited (BSP) is the provision of commercial banking and financial services throughout Papua New Guinea (PNG) and the Asia Pacific region. The Group’s activities also include fund management and life insurance business services. BSP is a company listed on the PNG Exchange Markets (PNGX) and the Australian Stock Exchange (ASX), 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 Solomon Islands, Vanuatu, Fiji, Samoa, Tonga, Cook Islands, Cambodia and Laos. The registered office is at Section 34, Allotment 6 & 7, Klinki Street, Waigani Drive, Port Moresby. Review of operations For the year ended 31 December 2024, the Group’s profit after tax was K1,037.711 million (2023: K890.215 million). The Bank’s profit after tax was K1,035.662 million (2023: K800.826 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. For the 2024 financial year, the Directors affirm that, to the best of their knowledge, BSP Financial Group has not participated in any activities that violate laws and regulations. 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 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 Dividends totalling K712.684 million were paid in 2024 (2023: K831.813 million) to shareholders. A detailed breakup of this is provided in note 28. Outside Interests and Conflicts The Directors confirm that all significant interests in contracts related to the Group were disclosed, and they abstained from voting on matters in which they had an interest. Shareholders Engagement BSP Financial Group Limited is committed to providing fair and equitable treatment to all shareholders and offers various channels for accessing information about the Group’s operations. The Directors affirm that the Group has taken all necessary steps to ensure fair and equitable treatment of all shareholders, implementing procedures that protect shareholder rights and remove barriers to exercising those rights. Internal Controls Effectiveness The Directors confirm that they have assessed the effectiveness of the internal controls and risk management processes and consider them to be suitable. Engagement with Traditional Landowners The success of BSP Financial Group greatly depends on fostering and sustaining strong, supportive relationships with communities and organisations affected by our decisions. We actively engage with these communities through our donations, community projects and sponsorships. This collaboration with external partners on projects across various sectors helps provide community benefits and promote sustainable development in Papua New Guinea and the Asia Pacific region. Directors and officers The following were directors of the BSP Financial Group Limited at 31 December 2024: Mr Robert G. Bradshaw Mr Mark T. Robinson Mr Frank D. Bouraga Mr Symon G. Brewis-Weston Mr Ian A. Tarutia Mrs Patricia F. Taureka-Seruvatu Mr Stuart A. Davis Ms Priscilla Kevin Dr Matagialofi Lua’iufi Mr Stephen C. Beach Details of directors’ tenure and directors and executives’ remuneration during the year are provided in Note 36 of the Notes to the Financial Statements. The Group CEO Mark T. Robinson was the only executive director. The company secretary is Vandhna Narayan, appointment effective on 19th of October 2024. Independent auditor’s report The financial statements have been audited and should be read in conjunction with the independent auditor’s report on page 129. Details of amounts paid to the auditors for audit and other services are shown in Note 40 of the Notes to the Financial Statements. Donations and sponsorships Donations and sponsorship by the Group during the year amounted to K17.349 million (2023: K7.577 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 19th day of February 2025. Mr Robert G. Bradshaw Chairman Mr Mark T. Robinson Group Chief Executive Officer and Managing Director 61 6 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S For the Year Ended 31 December 2024 S T A T E M E N T S O F C O M P R E H E N S I V E I N C O M E Consolidated Bank All amounts are expressed in K’000 Note 2024 2023 2024 2023 Interest income 3 2,091,750 1,962,928 1,965,706 1,849,145 Interest expense 3 (127,251) (118,097) (119,933) (110,447) Net interest income 1,964,499 1,844,831 1,845,773 1,738,698 Net fee and commission income 4 386,581 353,900 357,221 323,249 Other income 4 570,252 488,719 600,448 469,894 Net insurance operating income 31 57,757 61,236 – – Net operating income before impairment and operating expenses 2,979,089 2,748,686 2,803,442 2,531,841 Impairment of financial assets 6 18,212 (182,195) 41,605 (165,562) Operating expenses 5 (1,267,271) (1,013,098) (1,149,376) (940,008) Additional company tax settlement 7 95,000 – 95,000 – Profit before income tax 1,825,030 1,553,393 1,790,671 1,426,271 Income tax expense 7 (787,319) (663,178) (755,009) (625,445) Net profit for the year attributable to parent 1,037,711 890,215 1,035,662 800,826 Other comprehensive income Items that may be subsequently reclassified to profit or loss: Translation of financial information of foreign operations to presentation currency 29 38,519 94,112 24,757 48,551 Items that will not be reclassified to profit or loss: Recognition of deferred tax on asset revaluation reserve movement 29 748 615 748 615 Net movement in asset revaluation reserve 29 (2,764) 38,349 503 28,048 Other comprehensive income, net of tax 36,503 133,076 26,008 77,214 Total comprehensive income for the year attributable to parent 1,074,214 1,023,291 1,061,670 878,040 Earnings per share – basic and diluted (toea) 8 222.1 190.5 221.7 171.4 Comparative period amounts have been restated to conform to presentation in the current year. The attached notes form an integral part of these financial statements. S T A T E M E N T S O F F I N A N C I A L P O S I T I O N As at 31 December 2024 Consolidated Bank All amounts are expressed in K’000 Note 2024 2023 2024 2023 ASSETS Cash and operating balances with Central Banks 10 3,361,616 3,306,085 2,597,827 2,430,613 Amounts due from other banks 11 1,874,178 1,779,677 1,549,526 1,595,587 Treasury and Central Bank Bills 12 2,517,652 3,803,598 2,438,643 3,768,110 Cash reserve requirement with Central Banks 13 3,255,374 2,841,812 3,102,136 2,699,236 Other financial assets 14 7,157,971 6,373,451 6,471,226 5,741,162 Loans and receivables from customers 15 16,269,841 16,013,022 15,123,011 14,802,133 Asset held for sale 39 14,544 – – – Property, plant and equipment 1,046,624 1,034,741 754,156 765,075 Aircraft subject to operating lease 30,006 32,387 30,006 32,387 Investment in subsidiaries 32 – – 393,833 390,635 Deferred tax assets 7 257,517 329,288 252,205 323,233 Other assets 16 1,338,028 1,437,226 547,959 680,138 Total assets 37,123,351 36,951,287 33,260,528 33,228,309 LIABILITIES Amounts due to other banks 17 260,198 363,665 657,738 604,785 Customer deposits 18 29,082,961 29,835,111 27,055,110 27,911,977 Insurance contract liabilities 31 1,437,650 1,249,512 – – Other liabilities 19 1,630,971 1,197,889 1,493,313 1,072,358 Deferred tax liabilities 7 58,505 61,780 – – Total liabilities 32,470,285 32,707,957 29,206,161 29,589,120 SHAREHOLDERS’ EQUITY Ordinary shares 28 372,110 372,110 372,110 372,110 Retained earnings 29 3,732,584 3,415,689 3,330,765 2,963,899 Other reserves 29 513,638 454,830 351,492 303,180 Equity attributable to the members of the company 4,618,332 4,242,629 4,054,367 3,639,189 Minority interests 32 34,734 701 – – Total shareholders’ equity 4,653,066 4,243,330 4,054,367 3,639,189 Total equity and liabilities 37,123,351 36,951,287 33,260,528 33,228,309 The attached notes form an integral part of these financial statements. Mr Robert G. Bradshaw Chairman Mr Mark T. Robinson Group Chief Executive Officer and Managing Director 6 3 6 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S For the Year Ended 31 December 2024 S T A T E M E N T S O F C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y All amounts are expressed in K’000 Note Share capital Reserves Retained earnings Minority interests Total GROUP Balance as at 1 January 2023 372,110 319,881 3,359,184 727 4,051,902 Net profit – – 890,215 – 890,215 Other comprehensive income – 133,076 – – 133,076 Total comprehensive income – 133,076 890,215 – 1,023,291 Dividends paid during the year 28 – – (831,616) (197) (831,813) Gain attributable to minority interests – – (171) 171 – Total transactions with owners – – (831,787) (26) (831,813) Transfer from asset revaluation reserve 29 – (1,632) 1,632 – – Others – 1,053 (1,103) – (50) BSP Life policy reserve 29 – 2,452 (2,452) – – Balance at 31 December 2023 372,110 454,830 3,415,689 701 4,243,330 Net profit – – 1,037,711 – 1,037,711 Other comprehensive income – 36,503 – – 36,503 Total comprehensive income – 36,503 1,037,711 – 1,074,214 Dividends paid during the year 28 – – (712,684) (269) (712,953) Minority interest capital 32 – – – 33,918 33,918 Gain attributable to minority interests – – (384) 384 – Total transactions with owners – – (713,068) 34,033 (679,035) Transfer from asset revaluation reserve 29 – (1,746) 1,746 – – Others 29 – (4) – – (4) Asset revaluation reserve tax effect change – 14,561 – – 14,561 BSP Life policy reserve 29 – 9,494 (9,494) – – Balance at 31 December 2024 372,110 513,638 3,732,584 34,734 4,653,066 BANK Balance as at 1 January 2023 372,110 224,976 2,991,169 – 3,588,255 Net profit – – 800,826 – 800,826 Other comprehensive income – 77,214 – – 77,214 Total comprehensive income – 77,214 800,826 – 878,040 Dividends paid during the year 28 – – (827,106) – (827,106) Total transactions with owners – – (827,106) – (827,106) Transfer from asset revaluation reserve 29 – (1,462) 1,462 – – BSP Life policy reserve 29 – 2,452 (2,452) – – Balance at 31 December 2023 372,110 303,180 2,963,899 – 3,639,189 Net profit – – 1,035,662 – 1,035,662 Other comprehensive income – 26,008 – – 26,008 Total comprehensive income – 26,008 1,035,662 – 1,061,670 Dividends paid during the year 28 – – (705,521) – (705,521) Total transactions with owners – – (705,521) – (705,521) Transfer from asset revaluation reserve 29 – (1,751) 1,751 – – Asset revaluation reserve tax effect change – 14,561 – – 14,561 Gain on amalgamation 38 – – 44,468 – 44,468 BSP Life policy reserve 29 – 9,494 (9,494) – – Balance at 31 December 2024 372,110 351,492 3,330,765 – 4,054,367 The attached notes form an integral part of these Financial Statements. S T A T E M E N T S O F C A S H F L O W S For the Year Ended 31 December 2024 Consolidated Bank All amounts are expressed in K’000 Note 2024 2023 2024 2023 CASH FLOW FROM OPERATING ACTIVITIES Interest received 2,081,110 1,811,037 1,953,510 1,737,885 Fees and other income 888,874 950,266 955,217 884,782 Interest paid (104,865) (125,932) (113,178) (91,395) Insurance premiums received 304,551 266,148 – – Claims, surrenders and maturity payments (173,358) (166,366) – – Additional company tax settlement 7 95,000 – 95,000 – Amounts paid to suppliers and employees (1,154,076) (1,160,925) (976,970) (1,119,853) Operating cash flow before changes in operating assets and liabilities 9 1,937,236 1,574,228 1,913,579 1,411,419 Net (increase)/decrease in: Loans and receivables from customers (12,788) (1,443,252) (105,913) (1,501,138) Cash reserve requirements with the Central Banks (404,779) (290,437) (397,924) (255,308) Bills receivable and other assets 57,205 (170,641) 95,267 (75,588) Net increase/(decrease) in: Customer deposits (887,244) 2,450,609 (935,175) 2,388,419 Bills payable and other liabilities 452,703 336,869 301,593 244,222 Net cash flow from operations before income tax 1,142,333 2,457,376 871,427 2,212,026 Income taxes paid 7 (653,668) (705,969) (629,430) (677,287) Net cash flow from operating activities 488,665 1,751,407 241,997 1,534,739 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from government securities 12,011,165 11,638,082 11,364,057 11,371,850 Purchases of government securities (11,482,109) (12,846,075) (10,749,364) (12,565,005) Expenditure on property, plant and equipment (135,381) (74,798) (140,053) (39,289) Expenditure on software development costs (15,885) (82,549) (15,885) (81,848) Proceeds from disposal of assets 2,518 1,513 34,818 1,493 Net cash flow from/(used) in investing activities 380,308 (1,363,827) 493,573 (1,312,799) CASH FLOW FROM FINANCING ACTIVITIES Dividends paid 28 (712,953) (831,813) (705,521) (827,106) Payment of interest on borrowings – (246,479) – (246,479) Repayment of principal on borrowings – (9,533) – (9,533) Sale of minority interest in subsidiary 32 33,918 – – – Net cash flow used in financing activities (679,035) (1,087,825) (705,521) (1,083,118) Net increase/(decrease) in cash and cash equivalents 189,938 (700,245) 30,049 (861,178) Exchange rate movements on cash and cash equivalents 63,561 194,998 38,151 105,233 Cash and cash equivalents at the beginning of the year 4,722,097 5,227,344 3,421,415 4,177,360 Cash and Cash Equivalents at the end of the year 9 4,975,596 4,722,097 3,489,615 3,421,415 Comparative period amounts have been restated to conform to presentation in the current year. The attached notes form an integral part of these Financial Statements. 6 5 6 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S For the Year Ended 31 December 2024 1. Financial Statements Preparation (continued) • Annual improvements to IFRS – Volume 11 (effective 1 January 2026 – with earlier application permitted). Annual improvements are limited to changes that either clarify the wording in an Accounting Standard or correct relatively minor unintended consequences, oversights or conflicts between the requirements in the Accounting Standards. The 2024 amendments are to the following standards: • IFRS 1 First-time Adoption of International Financial Reporting Standards; • IFRS 7 Financial Instruments: Disclosures and its accompanying Guidance on implementing IFRS 7; • IFRS 9 Financial Instruments; • IFRS 10 Consolidated Financial Statements; and • IAS 7 Statement of Cash Flows. • IFRS 18 Presentation and Disclosure in Financial Statements (effective 1 January 2027). This is the new standard on presentation and disclosure in financial statements, with a focus on updates to the statement of profit or loss. The key new concepts introduced in IFRS 18 relate to: • the structure of the statement of profit or loss; • required disclosures in the financial statements for certain profit or loss performance measures that are reported outside an entity’s financial statements (that is, management-defined performance measures); and • enhanced principles on aggregation and disaggregation which apply to the primary financial statements and notes in general. The Group continues to assess the impact of adopting Standards, amendments and interpretations issued but not yet effective for the year ended 31 December 2024. New IFRS sustainability disclosure standards effective after 1 January 2025 • IFRS S1, ‘General requirements for disclosure of sustainability-related financial information (effective 1 January 2027 – This is subject to endorsement by the Accounting Standards Board of PNG). This standard includes the core framework for the disclosure of material information about sustainability-related risks and opportunities across an entity’s value chain. • IFRS S2, ‘Climate-related disclosures’ (effective 1 January 2027 – This is subject to endorsement by the Accounting Standards Board of PNG). This is the first thematic standard issued that sets out requirements for entities to disclose information about climate-related risks and opportunities. B. Consolidation The Financial Statements incorporate the assets and liabilities of all controlled entities of the Group as at 31 December 2024, 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. Subsidiaries are accounted for at acquisition under the acquisition method of accounting, where: • consideration transferred is measured at the fair value of assets transferred, equity issued and liabilities assumed; • identifiable net assets are recorded initially at acquisition, at their fair values; and • 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. 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, unless otherwise stated. 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, are recognised in the foreign currency translation reserve, and recognised in the Statement of Comprehensive Income on disposal of the foreign operation. 1. Financial Statements Preparation The material 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 Financial Statements where required, presents restated comparative information for consistency with the current year’s presentation in the Financial Statements. The assets and liabilities are presented in order of liquidity on the Statements of Financial Position. A. Basis of Presentation and Material Accounting Policies The Financial Statements of the BSP Financial Group Limited 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 2024 The following standards, amendments and interpretations to existing standards became applicable for the first time during the accounting period ended 31 December 2024. • Amendment to IAS 1 – Non-current liabilities with covenants. These amendments clarify how conditions which an entity must comply within twelve months after the reporting period affect the classification of a liability. The amendments also aim to improve information an entity provides related to liabilities subject to these amendments. • Amendment to IFRS 16 – Leases on sale and leaseback. These amendments include requirements for sale and leaseback transactions in IFRS 16 to explain how an entity accounts for a sale and leaseback after the date of the transaction. Sale and leaseback transactions where some or all the lease payments are variable lease payments that do not depend on an index or rate are most likely to be impacted. • Amendment to IAS 7 and IFRS 7 – Supplier finance. These amendments require disclosures to enhance the transparency of supplier finance arrangements and their effects on an entity’s liabilities, cash flows and exposure to liquidity risk. The disclosure requirements are the IASB’s response to investors’ concerns that some companies’ supplier finance arrangements are not sufficiently visible, hindering investors’ analysis. The above changes did not have any material impact on the Group. Standards, amendments and interpretations issued but not yet effective for the year ended 31 December 2024 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 2025 or later periods, but the entity has not early adopted them: • Amendments to IAS 21 – Lack of Exchangeability (effective 1 January 2025 – early adoption is available). An entity is impacted by the amendments when it has a transaction or an operation in a foreign currency that is not exchangeable into another currency at a measurement date for a specified purpose. A currency is exchangeable when there is an ability to obtain the other currency (with a normal administrative delay), and the transaction would take place through a market or exchange mechanism that creates enforceable rights and obligations. • Amendment to IFRS 9 and IFRS 7 – Classification and Measurement of Financial Instruments (effective 1 January 2026 – early adoption is available). These amendments: • clarify the requirements for the timing of recognition and derecognition of some financial assets and liabilities, with a new exception for some financial liabilities settled through an electronic cash transfer system; • clarify and add further guidance for assessing whether a financial asset meets the solely payments of principal and interest (SPPI) criterion; • add new disclosures for certain instruments with contractual terms that can change cash flows (such as some instruments with features linked to the achievement of environment, social and governance (ESG) targets); and • make updates to the disclosures for equity instruments designated at Fair Value through Other Comprehensive Income (FVOCI). N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 6 7 6 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 Financial Performance 2. Segment Reporting Accounting Policy Segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker. This reflects the way the Group’s businesses are managed, rather than the legal structure of the Group. 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/ segments for management purposes are banking services, split into PNG Bank and Offshore Banks and non- banking services which comprise insurance operations, fund management and asset financing activities. The Bank and Group’s business segments operate in Papua New Guinea, Solomon Islands, Vanuatu, Fiji, Samoa, Tonga, Cook Islands, Cambodia and Laos. Inter segment adjustments reflect elimination entries in respect of inter segment income and expense allocations including funds transfer pricing. Consolidated All amounts are expressed in K’000 PNG Bank Pacific Markets Non-Bank Entities Adjust Inter Segments Total Analysis by segments Year ended 31 December 2024 Net interest income 1,557,811 368,326 36,683 1,679 1,964,499 Net fee, commission and other income 378,014 124,497 6,376 (112,628) 396,259 Foreign exchange related 401,621 158,935 18 – 560,574 Net insurance income – – 57,320 437 57,757 Total operating income 2,337,446 651,758 100,397 (110,512) 2,979,089 Operating expenses (972,634) (253,795) (47,364) 6,522 (1,267,271) Impairment expenses 19,847 15,410 (17,045) – 18,212 Additional company tax settlement 95,000 – – – 95,000 Profit before income tax 1,479,659 413,373 35,988 (103,990) 1,825,030 Income tax (669,644) (105,846) (11,829) – (787,319) Net profit after income tax 810,015 307,527 24,159 (103,990) 1,037,711 Assets 24,860,573 12,037,823 2,220,534 (1,995,579) 37,123,351 Liabilities (21,701,308) (10,502,276) (1,665,783) 1,399,082 (32,470,285) Net assets 3,159,265 1,535,547 554,751 (596,497) 4,653,066 Consolidated All amounts are expressed in K’000 PNG Bank (restated) Pacific Markets Non-Bank Entities Adjust Inter Segments Total (restated) Year ended 31 December 2023 Net interest income 1,479,288 329,803 35,406 334 1,844,831 Net fee, commission and other income 393,782 20,893 26,263 (56,026) 384,912 Foreign exchange related 399,362 58,345 – – 457,707 Net insurance income – – 60,642 594 61,236 Total operating income 2,272,432 409,041 122,311 (55,098) 2,748,686 Operating expenses (774,194) (230,595) (17,807) 9,498 (1,013,098) Impairment expenses (161,378) (9,523) (11,294) – (182,195) Profit before income tax 1,336,860 168,923 93,210 (45,600) 1,553,393 Income tax (559,079) (84,976) (19,123) – (663,178) Net profit after income tax 777,781 83,947 74,087 (45,600) 890,215 Assets 25,964,685 10,560,798 2,264,240 (1,838,436) 36,951,287 Liabilities (23,119,456) (9,165,332) (1,652,013) 1,228,844 (32,707,957) Net assets 2,845,229 1,395,466 612,227 (609,592) 4,243,330 1. Financial Statements Preparation (continued) D. 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 and judgments are: • Estimation of current tax liability in the multiple tax jurisdictions – note 7; • Estimated impairment of financial or non-financial assets – note 12, 14, 15 and 22; • Estimated insurance liability – note 31; and • Estimation of fair value of financial and non-financial assets and liabilities – note 27. Measurement of expected credit loss allowance for financial assets measured at amortised cost in line with IFRS 9 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 Expected Credit Losses (ECL) is further detailed in note 15, and note 22 setting out the key sensitivities of the ECL 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 is set out in note 15. 6 9 6 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 4. Non-Interest Income Accounting policy Fee and commission income Fees and commissions are generally recognised on an accrual basis when the performance obligation is satisfied (i.e. service has been provided). Other non-risk fee income, which includes facility fees, includes certain line fees and fees for providing customer bank accounts. They are recognised over the term of the facility/period of service on a straight-line basis. All other risk related fees that constitute cost recovery are taken to income when levied. Income which forms an integral part of the effective interest rate of a financial instrument is recognised using the effective interest rate method and recorded in interest income (for example, loan origination fees). Foreign exchange income or 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. Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Net fee and commission income Electronic banking related fee income 248,806 213,387 233,178 197,975 Electronic banking related fee expense (92,785) (73,692) (79,811) (62,097) Net electronic banking related fee income 156,021 139,695 153,367 135,878 Trade and international related 22,282 20,711 19,419 17,981 Product related 165,989 157,779 153,006 144,225 Other 42,289 35,715 31,429 25,165 386,581 353,900 357,221 323,249 Other income Foreign exchange related1 560,574 457,707 488,962 399,362 Operating lease rentals 4,534 4,535 4,534 4,535 Dividend income received – – 83,666 38,603 Other 5,144 26,477 23,286 27,394 570,252 488,719 600,448 469,894 1. Foreign exchange related income includes gains and losses from spot and forward contracts and translated foreign currency assets and liabilities. 3. Net Interest Income Accounting Policy Interest income and expense are recognised in the Statement of Comprehensive Income on an accrual basis using the effective interest rate (“EIR”) method. The EIR method calculates the amortised cost of a financial instrument by discounting the financial instrument’s estimated future cash receipts or payments to their present value and allocates the interest income or interest expense, including any fees, costs, premiums or discounts integral to the instrument, over its expected life. Interest income includes coupons earned on Government inscribed stock, accrued discounts and premiums on Treasury and Central Bank bills. 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. Expenses associated with the borrowing of funds are charged to the Statement of Comprehensive Income in the period in which they are incurred. Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Interest income Loans and receivables from customers1 1,439,924 1,315,235 1,319,218 1,204,163 Other financial assets – inscribed stock 468,376 419,474 466,802 418,144 Treasury bills 103,925 154,207 103,766 154,168 Central Bank bills 3,815 7,638 3,459 7,588 Cash and balances with Central Banks 36,324 31,393 49,306 42,698 Other 39,386 34,981 23,155 22,384 Total interest income 2,091,750 1,962,928 1,965,706 1,849,145 Less: Interest expense Customer deposits 111,218 100,397 89,276 82,088 Other banks 10,014 11,729 24,971 22,719 Other interest expense 6,019 5,971 5,686 5,640 Total interest expense 127,251 118,097 119,933 110,447 Net interest income 1,964,499 1,844,831 1,845,773 1,738,698 1. Group interest income includes K27.105 million (Bank K24.639 million) recognised on impaired loans (Stage 3) to customers, 2023: K23.428 million (Bank K19.788 million). The Group takes up required provisions on such interest income as detailed in the accounting policy in note 15. 7 1 7 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 6. Impairment of Financial Assets Accounting Policy Impairment Loans and receivables from customers are subject to continuous management review. If there is an expectation that the Group will not be able to collect amounts due under the terms of the loan, a provision is recognised equivalent to lifetime ECL. All bad debts are written off against the available specific provision for loan impairment in the period in which they are classified as irrecoverable. Subsequent recoveries and reductions in provisions are credited to the provision for loan losses in the Statement of Comprehensive Income. General provisions for impairment are maintained to cover expected losses unidentified at balance date in the overall portfolio of Loans and 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. The Group assesses on a forward-looking basis the 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; 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 15 provides more detail of how the expected credit loss allowance is measured. Impairment expense/(release) of financial assets by asset class is as follows: Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Loans and receivables from customers (note 15) (18,035) 172,615 (40,650) 155,917 Treasury and Central Bank Bills (note 12) (6,955) (644) (7,019) (583) Other financial assets (note 14) 6,778 10,224 6,064 10,228 (18,212) 182,195 (41,605) 165,562 5. Operating Expenses Accounting Policy Salaries and related on-costs include annual leave, long service leave, employee incentives and relevant taxes. Staff expenses are recognised over the period the employee renders the service. Long service leave is discounted to present value using assumptions relating to staff departure, leave utilisation and future salary. Superannuation expense includes expenses relating to defined contribution plans. Defined contribution expense is recognised in the period the service is provided. Premises and equipment expenses include depreciation, which is calculated using the straight-line method over the asset’s estimated useful life. The right-of-use assets are recognised under IFRS 16. Leases are depreciated over the shorter of the lease term or the useful life of the underlying asset, with the depreciation presented within depreciation of Property, Plant and Equipment. Computing expenses are recognised as incurred, unless they qualify for capitalisation as computer software due to the expenditure generating probable future economic benefits. If capitalised, computer software is subsequently amortised over its estimated useful life. The Group assesses, at each balance sheet date, useful lives and residual values and whether there is any objective evidence of impairment. If an asset’s carrying value is greater than its recoverable amount, the carrying amount is written down immediately to its recoverable amount. Other expenses are recognised as the relevant service is rendered. Operating expenses related to provisions are recognised for present obligations arising from past events where a payment to settle the obligation is probable and can be reliably estimated. Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Administration 243,700 95,241 227,230 80,763 Computing 159,489 141,491 147,945 130,989 Depreciation 81,087 80,733 75,266 74,773 Amortisation of software costs 49,175 46,383 48,999 46,122 Non-executive directors costs 4,639 4,646 4,718 4,326 Non-lending losses 15,948 42,802 15,758 44,101 Impairment loss on Joint Ventures 35,816 – – – Premises and equipment 114,998 106,800 107,471 99,896 704,852 518,096 627,387 480,970 Staff costs Wages and salaries 448,483 388,356 415,256 358,855 Defined contribution plans 23,070 19,973 20,873 18,065 Statutory leave entitlements 15,791 14,276 14,854 13,186 Other staff benefits 75,075 72,397 71,006 68,932 562,419 495,002 521,989 459,038 1,267,271 1,013,098 1,149,376 940,008 7 3 7 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 7. Income Tax (continued) Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Tax (payable)/receivable At 1 January 40,033 (2,507) 40,836 (4,104) Income tax provision (695,037) (664,841) (667,589) (634,630) Adjustment to prior year estimates 8,632 3,064 9,263 2,283 Other tax related items 1,800 (1,652) 1,351 – Foreign tax paid 23,809 24,241 – – Tax payments made 629,859 681,728 629,430 677,287 At 31 December 9,096 40,033 13,291 40,836 Deferred tax balances are represented by the tax effect of the following items: Specific allowance for losses on loans and receivables from customers 76,160 82,861 69,883 76,335 General allowance for losses on loans and receivables from customers 116,346 180,896 113,005 176,949 Employee related provisions 69,821 44,058 68,033 42,580 Prepaid expenses (1,205) (684) (1,695) (193) Other provisions 20,519 22,671 68,401 79,741 Property, plant and equipment (96,836) (86,715) (77,722) (73,854) Unrealised foreign exchange gains (233) (541) (233) (541) Impact of PNG tax rate change¹ (22,786) – (22,786) – Accruals 37,226 24,962 35,319 22,216 At 31 December 199,012 267,508 252,205 323,233 Represented by: Deferred tax asset 257,517 329,288 252,205 323,233 Deferred tax liability (58,505) (61,780) – – At 31 December 199,012 267,508 252,205 323,233 Deferred taxes movement: At 1 January 267,508 294,184 323,233 336,108 Current year movement (63,676) (1,643) (58,898) 6,909 Adjustment to prior year estimates (109) (242) 438 7 Impact of PNG tax rate change¹ (22,786) – (22,786) – Other movements 18,075 (24,791) 10,218 (19,791) At 31 December 199,012 267,508 252,205 323,233 1. The 2025 PNG National Budget and subsequent legislation passed before year end introduced a gradual reduction in the Corporate Income Tax rate for commercial banks as outlined below: 1. Profits below K300 million: Tax rate reduces from 45% to 40% in 2025, and 35% in 2026. 2. Profits above K300 million: Tax rate drops from 45% to 44% in 2025, decreasing by 1% annually until reaching 35%. Given the legislation has been substantively enacted as at 31 December 2024 deferred tax balances have been calculated using the revised tax rates in the period they are expected to be utilised. A one-off charge of K37.347 million to tax expense was recognised resulting from the restatement of deferred tax balances relating to PNG Bank and its branches at the effective tax rate in the December 2024 accounts. 2. The PNG Government imposed a K190 million Additional Company Tax (the Tax) on banks with over 40% market share for the 2022 financial year, directly affecting BSP’s net profit. The Tax was non-deductible and was deposited in an escrow account pending BSP’s legal challenge. On 19 February 2024, BSP settled its judicial review with the Internal Revenue Commission (IRC), agreeing to: 1. Receive a K95 million refund from the escrow account. 2. Pay K95 million to the IRC as a final settlement which was completed in April 2024. 7. Income Tax Accounting Policy 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). 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. 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 is 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 are 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. Critical accounting assumptions and estimates Recoverability of tax receivables, deferred tax assets and measurement of current and deferred tax liabilities can require significant judgement, particularly where the recoverability of such tax balances relies on the estimation of future taxable profits and management’s determination of the likelihood that uncertain tax positions will be accepted by the relevant taxation authority. Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Income tax expense Current tax 695,037 664,841 667,589 634,630 Deferred tax 63,676 1,643 58,898 (6,909) Current year 758,713 666,484 726,487 627,721 Adjustment to prior year estimates (8,741) (3,306) (8,825) (2,276) Impact of PNG tax rate change¹ 37,347 – 37,347 – 787,319 663,178 755,009 625,445 Tax calculated at 45% (2023: 45%) of Bank profit before tax 805,802 641,822 805,802 641,822 Tax calculated at respective subsidiary tax rates 27,734 39,000 – – Expenses not deductible for tax purposes 18,798 9,138 1,084 3,270 Tax loss not recognised 4,811 8,610 – – Income not recognised for tax purposes2 (98,432) (32,086) (80,399) (17,371) Impact of PNG tax rate change1 37,347 – 37,347 – Adjustment to prior year estimates (8,741) (3,306) (8,825) (2,276) 787,319 663,178 755,009 625,445 7 5 74 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 Financial Instruments: Financial Assets Accounting Policy Recognition Loans and receivables are recognised on settlement date, when cash is advanced to the borrowers. 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. • Significant extension of the loan term when the borrower is not in financial difficulty. • 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 the Statement of Comprehensive Income 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 through the Statement of Comprehensive Income. 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 Financial assets are de-recognised when the rights to receive cash flows from the asset have expired. There may be situations where the Group has partially transferred the risks and rewards of ownership and has neither transferred nor retained substantially all the risks and rewards of ownership. In such situations, the asset continues to be recognised on the balance sheet to the extent of the Group’s continuing involvement in the asset. Classification and measurement Financial assets are grouped into the following classes: cash and balances with central banks and financial assets measured at fair value through income statement (FVIS), investment securities, loans, other financial assets and life insurance assets. Financial assets are classified based on a) the business model within which the assets are managed, and b) whether the contractual cash flows of the instrument represent solely payment of principal and interest (SPPI). The Group determines the business model at the level that reflects how groups of financial assets are managed. When assessing the business model the Group considers factors including how performance and risks are managed, evaluated and reported and the frequency and volume of, and reason for, sales in previous periods and expectations of sales in future periods. When assessing whether contractual cash flows are SPPI, interest is defined as consideration primarily for the time value of money and the credit risk of the principal outstanding. The time value of money is defined as the element of interest that provides consideration only for the passage of time and not consideration for other risks or costs associated with holding the financial asset. Terms that could change the contractual cash flows so that they may not meet the SPPI criteria include contingent and leverage features, non-recourse arrangements, and features that could modify the time value of money. 8. Earnings per Ordinary Share Accounting Policy 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, adjusted for shares which are bought back by BSP. Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Net profit attributable to parent equity interest (K’000) 1,037,711 890,215 1,035,662 800,826 Weighted average number of ordinary shares in use (000) 467,220 467,220 467,220 467,220 Basic and diluted earnings per share (expressed in toea) 222.1 190.5 221.7 171.4 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. BSP Financial Group Limited has no dilutive potential ordinary shares. Consequently, basic earnings per ordinary share equals diluted earnings per share. 9. Reconciliation of Operating Cash Flow Reconciliation of net profit after tax to operating cash flow before changes in operating assets and liabilities Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Net profit after tax 1,037,711 890,215 1,035,662 800,826 Add: Tax expense 787,319 663,178 755,009 625,445 Profit before income tax 1,825,030 1,553,393 1,790,671 1,426,271 Major non cash amounts Depreciation 81,087 80,733 75,266 74,773 Amortisation of software costs 49,175 46,383 48,999 46,122 Net gain on sale of fixed assets (2,466) (2,356) (2,282) (2,038) Impairment on financial assets (18,212) 182,195 (41,605) 165,562 Movement in payroll provisions 76,191 9,247 65,517 8,908 Net changes in assets and liabilities (73,569) (295,367) (22,987) (308,179) Operating cash flow before changes in operating assets and liabilities 1,937,236 1,574,228 1,913,579 1,411,419 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. Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Cash and balances with Central Banks (note 10) 3,361,616 3,306,085 2,597,827 2,430,613 Amounts due from other banks (note 11)1 1,874,178 1,779,677 1,549,526 1,595,587 Amounts due to other banks (note 17) (260,198) (363,665) (657,738) (604,785) 4,975,596 4,722,097 3,489,615 3,421,415 1. Amounts due from other banks includes deposits of K65.725 million (2023: K61.242 million) held with counter-party banks that are not available for use by the Group. 7 7 7 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 10. Cash and Operating Balances with Central Banks Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Notes, coins and cash at bank 747,285 707,416 657,920 612,198 Balances with Central Banks other than statutory deposit 2,614,331 2,598,669 1,939,907 1,818,415 At 31 December 3,361,616 3,306,085 2,597,827 2,430,613 11. Amounts Due from Other Banks Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Items in the course of collection 63,754 70,304 63,754 70,307 Placements with other banks 1,810,424 1,709,373 1,485,772 1,525,280 At 31 December 1,874,178 1,779,677 1,549,526 1,595,587 12. Treasury and Central Bank Bills Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Treasury and Central Bank Bills – face value 2,554,254 3,857,037 2,488,790 3,827,169 Unearned interest (35,130) (36,488) (35,312) (37,205) Less allowance for impairment (15,014) (21,969) (14,835) (21,854) 2,504,110 3,798,580 2,438,643 3,768,110 Financial assets carried at fair value through profit and loss Treasury Bills at fair value 13,542 5,018 – – At 31 December 2,517,652 3,803,598 2,438,643 3,768,110 Allowance for impairment At 1 January 21,969 22,613 21,854 22,437 Provision for impairment (6,955) (644) (7,019) (583) At 31 December 15,014 21,969 14,835 21,854 Financial Instruments: Financial Assets (continued) Debt instruments If the debt instruments have contractual cash flows which represent SPPI on the principal balance outstanding they are classified at: • amortised cost if they are held within a business model whose objective is achieved through holding the financial asset to collect these cash flows; or • fair value through other comprehensive income (FVOCI) if they are held within a business model whose objective is achieved either through collecting these cash flows or selling the financial asset; or • FVIS if they are held within a business model whose objective is achieved through selling the financial asset. Debt instruments are measured at FVIS where the contractual cash flows do not represent SPPI on the principal balance outstanding or where it is designated at FVIS to eliminate or reduce an accounting mismatch. Debt instruments at amortised cost are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method. They are presented net of provisions for expected credit losses determined using the ECL model. Debt instruments at FVOCI are measured at fair value with unrealised gains and losses recognised in other comprehensive income except for interest income, impairment charges and foreign exchange gains and losses, which are recognised in the Statement of Comprehensive Income. Impairment on debt instruments at FVOCI is determined using the ECL model and is recognised in the Statement of Comprehensive Income with a corresponding amount in other comprehensive income. There is no reduction of the carrying value of the debt security which remains at fair value. The cumulative gain or loss recognised in other comprehensive income is subsequently recognised in the Statement of Comprehensive Income when the instrument is derecognised. Debt instruments at FVIS are measured at fair value with subsequent changes in fair value recognised in the Statement of Comprehensive Income. Equity securities Equity securities are measured at FVOCI where they: • are not held for trading; and • an irrevocable election is made by the Group. Otherwise, they are measured at FVIS. Equity securities at FVOCI are measured at fair value with unrealised gains and losses recognised in other comprehensive income, except for dividend income which is recognised in the Statement of Comprehensive Income. The cumulative gain or loss recognised in other comprehensive income is not subsequently recognised in the Statement of Comprehensive Income when the instrument is disposed. Equity securities at FVIS are measured at fair value with subsequent changes in fair value recognised in the Statement of Comprehensive Income. 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. 7 9 7 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 15. Loans and Receivables from Customers Accounting Policy Loans are originated by providing funds directly to the borrower and are recognised when cash is advanced to borrowers. Loans are subsequently measured at amortised cost using the effective interest rate method where they have contractual cash flows which represent SPPI on the principal balance outstanding and they are held within a business model whose objective is achieved through holding the loans to collect these cash flows. They are presented net of any provisions for ECL. Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Overdrafts 1,160,654 1,329,034 1,096,000 1,266,512 Lease financing 217,196 187,292 216,916 165,604 Term loans 12,146,935 12,320,061 11,482,286 11,550,128 Mortgages 3,307,512 2,888,873 2,830,440 2,465,798 Gross loans and receivables from customers net of unearned interest 16,832,297 16,725,260 15,625,642 15,448,042 Less allowance for losses on loans and receivables from customers (562,456) (712,238) (502,631) (645,909) At 31 December 16,269,841 16,013,022 15,123,011 14,802,133 The spread of the loans is detailed in the maturity analysis table in Note 23. The loans are well-diversified across various sectors and are further analysed in Note 22. Allowance for losses includes K102.930 million (Bank K88.962 million), 2023: K97.057 million (Bank K83.055 million) provision taken up for interest recognised on Stage 3 loans. Lease financing The Bank and the Group 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 leases are included within Loans and receivables from customers and are analysed as follows: Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Gross investment in finance lease receivable Not later than 1 year 30,250 12,203 30,013 11,214 Later than 1 year and not later than 5 years 195,519 190,300 195,459 164,258 225,769 202,503 225,472 175,472 Unearned future finance income Not later than 1 year (332) (1,114) (322) (1,094) Later than 1 year and not later than 5 years (8,241) (14,097) (8,234) (8,774) (8,573) (15,211) (8,556) (9,868) Present value of minimum lease payments receivable 217,196 187,292 216,916 165,604 Present value of minimum lease payments receivable is analysed as follows: Not later than 1 year 29,918 11,089 29,691 10,120 Later than 1 year and not later than 5 years 187,278 176,203 187,225 155,484 At 31 December 217,196 187,292 216,916 165,604 13. Cash Reserve Requirement with Central Banks The Bank and the Group comply with the Cash Reserve Requirement (“CRR”) set by the regulatory authorities of the jurisdictions that it 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 Banks. The Bank and Group comply with this requirement on an ongoing basis. CRR applicable for each jurisdiction at balance date were: PNG 12% (2023: 10%), Solomon Islands 5.5% (2023: 5%), Vanuatu 5.25% (2023: 5.25%) Fiji 10% (2023: 10%), Samoa 4.5% (2023: 4.5%) and Tonga 15% (2023: 10%). 14. Other Financial Assets Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Inscribed Stock – issued by Central Bank 6,556,792 5,815,175 6,510,550 5,774,422 Less allowance for impairment (40,238) (33,460) (39,324) (33,260) 6,516,554 5,781,715 6,471,226 5,741,162 Financial assets carried at fair value through profit and loss: Government Inscribed Stock 308,158 277,876 – – Equity securities 333,259 313,860 – – At 31 December 7,157,971 6,373,451 6,471,226 5,741,162 Allowance for impairment At 1 January 33,460 23,236 33,260 23,032 Provision for impairment 6,778 10,224 6,064 10,228 At 31 December 40,238 33,460 39,324 33,260 8 1 8 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 15. Loans and Receivables from Customers (continued) Critical accounting assumptions and estimates Key judgements include when a significant increase in credit risk has occurred and estimation of forward looking macroeconomic information. Other factors which can impact the provision include the borrower’s financial situation, the realisable value of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of recovering the loan. Significant increase in credit risk Determining when a financial asset has experienced a significant increase in credit risk since origination is a critical accounting judgement which is primarily based on changes in internal customer risk grades since origination of the facility. Judgement is involved in setting the rules to determine whether there has been a significant increase in credit risk since initial recognition of a loan, resulting in the financial asset moving from ‘Stage 1’ to ‘Stage 2’, this increases the ECL calculation from an allowance based on the probability of default in the next 12 months, to an allowance for lifetime expected credit losses. Subsequent decreases in credit risk combined with transition from Stage 2 to Stage 1 may similarly result in significant changes in the estimate. The setting of precise trigger points requires judgement. The change in an internal customer risk grade is based on both quantitative and qualitative factors. The change in the internal customer risk grade that the Group uses to represent a significant increase in credit risk is based on a sliding scale. This means that a higher credit quality exposure at origination would require a more significant downgrade compared to a lower credit quality exposure before it is considered to have experienced a significant increase in credit risk. A backstop is applied and the financial instrument is considered to have experienced a significant increase in credit risk if the borrower is more than 30 days past due on its contractual payments. Customers in hardship arrangements are normally treated as an indication of a significant increase in credit risk. The Group does not apply the low credit risk exemption which assumes investment grade facilities do not have a significant increase in credit risk. Probability weighting of each scenario The Group considers three future macroeconomic scenarios including a base case scenario along with upside and downside scenarios. Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base case scenario, as well as specific portfolio considerations where required. This is further expanded in note 22. • Base case scenario This scenario utilises external economic forecasts used for strategic decision making and forecasting, resulting in the base case representing comparable market average default rates. • Upside scenario This scenario represents a modest improvement on the base case scenario, resulting in lower than market average default rates. • Downside scenario This scenario represents a moderate recession, with higher than market average default rates. Forward looking macroeconomic information The measurement of ECL for each stage and the assessment of significant increase in credit risk consider information about past events and current conditions as well as reasonable and supportable projections of future events and economic conditions. The estimation of forward-looking information is a critical accounting judgement. The macroeconomic variables used in these scenarios, based on current economic forecasts, include (but are not limited to) change in real gross domestic product growth rates and unemployment rates. The macroeconomic scenarios are weighted based on the Group’s best estimate of the relative likelihood of each scenario. The weighting applied to each of the three macroeconomic scenarios takes into account historical frequency, current trends, and forward looking conditions. The macroeconomic variables and probability weightings of the three macroeconomic scenarios are subject to the approval of the Group Chief Financial Officer and Group Chief Risk Officer. Where appropriate, adjustments will be made to modelled outcomes to reflect reasonable and supportable information not already incorporated in the models. Judgements can change with time as new information becomes available which could result in changes to the provision for expected credit losses. 15. Loans and Receivables from Customers (continued) Allowance for Expected Credit Losses Accounting Policy Impairment under IFRS 9 applies to all financial assets at amortised cost, lease receivables and credit commitments. The ECL determined under IFRS 9 is recognised as follows: • Loans (including lease receivables), debt securities at amortised cost and due from subsidiaries: as a reduction of the carrying value of the financial asset through an offsetting provision account; and • Credit commitments: as a provision recorded within other liabilities. Measurement The Group calculates the provisions for ECL based on a three stage approach. ECL are a probability-weighted estimate of the cash shortfalls expected to result from defaults over the relevant timeframe. They are determined by evaluating a range of possible outcomes and taking into account the time value of money, past events, current conditions and forecasts of future economic conditions. The models use three main components to determine the ECL including: • Probability of default (PD): the probability that a counterparty will default; • Loss given default (LGD): the loss that is expected to arise in the event of a default; and • Exposure at default (EAD): the estimated outstanding amount of credit exposure at the time of the default. Model stages The three stages are as follows: Stage 1: 12 months ECL – performing For financial assets where there has been no significant increase in credit risk since origination, a provision for 12 months ECL is recognised. Stage 2: Lifetime ECL – performing For financial assets where there has been a significant increase in credit risk since origination but where the asset is still performing, a provision for lifetime ECL is recognised. Stage 3: Lifetime ECL – non-performing For financial assets that are non-performing a provision for lifetime ECL is recognised. Indicators include a breach of contract with the Group such as a default on interest or principal payments, a borrower experiencing significant financial difficulties or observable economic conditions that correlate to defaults on a group of loans. Collective and individual assessment Expected credit losses are estimated on a collective basis for exposures in Stage 1, Stage 2 and Stage 3 exposures below specified thresholds and on an individual basis for Stage 3 exposures that meet specified thresholds. Expected life In considering the time frame for expected credit losses in Stages 2 and 3, the standard generally requires use of the remaining contractual life adjusted where appropriate for prepayments, extension and other options. For certain revolving credit facilities which include both a drawn and undrawn component (e.g. credit cards and revolving lines of credit), the Group’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the exposure to credit losses to the contractual notice period. For these facilities, lifetime is based on historical behaviour. Movement between stages Assets may move in both directions through the stages of the impairment model. Assets previously in Stage 2 may move back to Stage 1 if it is no longer considered that there has been a significant increase in credit risk. Similarly, assets in Stage 3 may move back to Stage 1 or Stage 2 if they are no longer assessed to be non-performing. Off-Balance Sheet amounts Any off-balance sheet items, such as loan commitments, are considered for impairment both on an individual and collective basis. Definition of default The definition of default used in measuring expected credit losses is aligned to the definition used for internal credit risk management purposes. The default occurs when there are indicators that a debtor is unlikely to fully satisfy contractual credit obligations to the Group, or the exposure is 90 days past due. Financial assets, including those that are well secured, are considered credit impaired for financial reporting purposes when they meet the definition of default. In subsequent periods, any recoveries of amounts previously written-off are credited to credit impairment charge in the Statement of Comprehensive Income. 8 3 8 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 15. Loans and Receivables from Customers (continued) The impact of the factors on the Group’s exposure and loss allowance is detailed in the following table: All amounts are expressed in K’000 EAD – Loans and receivables from customers Stage 1 Stage 2 Stage 3 Total 1 January 2023 13,059,927 1,350,157 481,432 14,891,516 Transfers to/(from) Stage 1 (351,029) 270,059 80,970 – Stage 2 462,385 (641,612) 179,227 – Stage 3 – 4,254 (4,254) – Net financial assets originated 2,214,747 (308,028) (72,975) 1,833,744 Total movement in EAD during the year 2,326,103 (675,327) 182,968 1,833,744 31 December 2023 15,386,030 674,830 664,400 16,725,260 ECL – Loans and receivables from customers 1 January 2023 236,472 108,891 225,671 571,034 Transfers to/(from) Stage 1 (6,107) 5,286 821 – Stage 2 29,682 (45,015) 15,333 – Stage 3 – 147 (147) – Net financial assets originated 63,176 3,265 (17,460) 48,981 Transfers between stages (24,219) 10,640 48,779 35,200 Movements due to risk parameter and other changes (28,165) 11,882 41,031 24,748 Total net P&L charge/(release) during 2023 34,367 (13,795) 88,357 108,929 Loans written off against provision/(write back of provision no longer required) – – (22,531) (22,531) 31 December 2023 270,839 95,096 291,497 657,432 EAD – Loans and receivables from customers 1 January 2024 15,386,030 674,830 664,400 16,725,260 Transfers to/(from) Stage 1 (163,815) 79,988 83,827 – Stage 2 188,652 (271,817) 83,165 – Stage 3 – 589 (589) – Net financial assets originated 428,174 (117,836) (203,301) 107,037 Total movement in EAD during the year 453,011 (309,076) (36,898) 107,037 31 December 2024 15,839,041 365,754 627,502 16,832,297 ECL – Loans and receivables from customers 1 January 2024 270,839 95,096 291,497 657,432 Transfers to/(from) Stage 1 (5,481) 3,743 1,738 – Stage 2 19,524 (28,549) 9,025 – Stage 3 – 74 (74) – Net financial assets originated (923) (10,042) (1,779) (12,744) Transfers between stages (11,583) (36,336) 15,211 (32,708) Movements due to risk parameter and other changes (60,398) (5,905) 106,775 40,472 Total net P&L charge/(release) during 2024 (58,861) (77,015) 130,896 (4,980) Loans written off against provision/(write back of provision no longer required) – – (132,290) (132,290) 31 December 2024 211,978 18,081 290,103 520,162 15. Loans and Receivables from Customers (continued) The loss allowance recognised in the period is impacted by a variety of factors, as described below and as detailed in the following table: Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Provision for impairment Movement in allowance for losses on loans and receivables from customers: Balance at 1 January 712,238 642,115 645,909 583,426 Net new and increased provisioning/(release of provisions) (17,492) 92,654 (43,835) 74,710 Loans written off against provisions/(Write back of provisions no longer required) (132,290) (22,531) (99,443) (12,227) At 31 December 562,456 712,238 502,631 645,909 Provision for impairment is represented by: Collective provision for on balance sheet exposure 230,059 365,935 211,901 341,734 Individually assessed or specific provision 290,103 291,497 251,599 252,688 Total provisions for on balance sheet exposure 520,162 657,432 463,500 594,422 Collective provision for off balance sheet exposure 42,294 54,806 39,131 51,487 At 31 December 562,456 712,238 502,631 645,909 Loan impairment expense Net collective provision funding (135,595) (1,640) (132,682) (165) Net new and increased individually assessed provisioning 118,103 94,294 88,847 74,875 Total new and increased provisioning/(release of provisions) (17,492) 92,654 (43,835) 74,710 Recoveries (96,538) (77,833) (91,695) (75,569) Net write off 95,995 157,794 94,880 156,776 At 31 December (18,035) 172,615 (40,650) 155,917 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; • Net financial assets originated, which includes additional allowances for new financial instruments recognised during the period, net of releases for financial instruments de-recognised in the period; and • Movement in risk parameters and other changes arising from regular refreshing of inputs to models, foreign exchange retranslations for assets denominated in foreign currencies and other movements. 8 5 8 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 Financial Instruments: Financial Liabilities Accounting Policy Recognition Financial liabilities are recognised when an obligation arises. Classification and subsequent measurement 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 • Financial guarantee contracts and loan commitments. 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: • The amount of the loss allowance (calculated as described in note 15); or • The premium received on initial recognition less income recognised in accordance with the principles of IFRS 15. Expected credit loss on loan commitments provided by the Group is measured as the amount of the loss allowance (calculated as described in note 15). 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 liability. 15. Loans and Receivables from Customers (continued) Total off balance sheet exposures are predominantly classified under Stage 1 as at balance date. 2024 Stage 1 2023 Stage 1 All amounts are expressed in K’000 Gross exposure Provisions Gross exposure Provisions Balance 1 January 3,501,126 54,806 4,593,667 71,081 Increase/(decrease) in exposure to expected credit losses 329,143 (12,512) (1,092,541) (16,275) Balance at 31 December 3,830,269 42,294 3,501,126 54,806 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. 16. Other Assets Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Financial Assets Funds in transit and other assets1 269,825 357,551 154,870 281,819 Intercompany account – – 5,918 5,068 Prepayments 47,058 40,605 40,124 31,793 Accounts receivable 8,456 6,321 6,338 4,519 Accrued income 10,494 11,818 6,209 10,216 Tax receivable 9,096 40,033 13,291 40,836 344,929 456,328 226,750 374,251 Non-Financial Assets Inventory 36,775 31,872 – – Investment in Joint Ventures 273,488 303,617 30,286 29,615 Intangible assets 294,828 282,243 290,923 276,272 Investment properties 388,008 363,166 – – 993,099 980,898 321,209 305,887 At 31 December 1,338,028 1,437,226 547,959 680,138 1. Funds in transit includes interbank transactions which are in the process of clearance. 8 7 8 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 20. Contingent Liabilities and Commitments The primary purpose of credit related commitments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Cash requirements under guarantees and standby letters of credit are considerably less than the amount of the commitment because the Group does not generally expect the third party to draw funds under the agreement. Commitments to extend credit represent the unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss, though not difficult to quantify, is considerably less than the total unused commitments since most commitments to extend credit are subject to customers maintaining approved specific credit standards. While there is credit risk associated with the remainder of commitments, the risk is considered to be modest, since it results from the possibility of unused portions of loan authorisations being drawn by the customer and, second, from these drawings subsequently not being repaid as due. The total outstanding contractual amount of commitments to extend does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded. The Bank has for some time been working to uplift and strengthen the Group’s systems and processes to comply with the Anti-money Laundering and Counter Terrorist Financing Act 2015 (AML and CTF). BSP has implemented various improvements, involving significant investment in systems and personnel, to its AML/CTF Program. Improvements undertaken by BSP include a revision of governance structures to give Directors enhanced oversight over the Compliance and AML functions; increased AML staffing resources; updated Risk Assessments and Policies; implementation of and enhancements to transaction monitoring systems; improved customer documentation and identification procedures and a comprehensive AML/CTF training program for staff who support the AML/CTF Program, as well as an awareness program for all its staff. The Board also monitors the effectiveness of its AML and CTF program through internal and external audit reviews where specific compliance issues and weaknesses are brought to the attention of the Board. This is an ongoing process and further uplifting and strengthening of the AML and CTF program may be required. The Financial Analysis and Supervision Unit (FASU) had advised BSP on 22 December 2022 that no penalties or fines will be levied in relation to the most recent external audit of BSP’s AML/CTF policies and procedures. FASU have advised they will continue to monitor progress on the execution of BSP’s Action Plan designed to improve the level of compliance with AML/CTF policies and procedures. Accordingly, no provision has been raised for this matter. The Group operates in a number of regulated markets and is subject to regulatory reviews and inquiries. The potential outcome and total costs associated with these regulatory reviews and inquiries and the remediation processes for any issues identified in the future remain uncertain. Off balance sheet financial instruments Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Letters of credit 231,074 238,236 227,192 230,572 Guarantees and indemnities issued 324,211 286,312 300,354 267,390 Commitments to extend credit 3,274,770 2,976,617 3,047,330 2,819,050 3,830,055 3,501,165 3,574,876 3,317,012 Commitments for capital expenditure Amounts with firm commitments, and not reflected in the accounts 87,167 44,585 67,141 16,358 Legal proceedings A number of legal proceedings against the Group were outstanding as at 31 December 2024. For all litigation exposure where a loss is probable, an appropriate provision has been made. Based on information available at 31 December 2024, the Group estimates a contingent liability of K17.1 million (2023: K16.4 million) in respect of these proceedings. 17. Amounts Due to Other Banks Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Vostro account balances 151,874 155,078 151,874 155,100 Interbank account balances 108,324 208,587 505,864 449,685 At 31 December 260,198 363,665 657,738 604,785 18. Customer Deposits Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 On demand and short term deposits 25,943,817 26,845,460 24,440,318 25,598,031 Term deposits 3,139,144 2,989,651 2,614,792 2,313,946 At 31 December 29,082,961 29,835,111 27,055,110 27,911,977 The deposits are diversified across industries and regions with the maturity profile of deposits included in note 23. 19. Other Liabilities Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Creditors and accruals 301,679 131,693 262,850 92,135 Items in transit and all other liabilities 678,940 428,128 776,351 541,337 Lease liability 267,943 279,816 238,002 251,468 Insurance business other liabilities 140,040 152,600 – – Other provisions 242,369 205,652 216,110 187,418 At 31 December 1,630,971 1,197,889 1,493,313 1,072,358 Repurchase agreements Where securities are sold subject to an agreement to repurchase at a predetermined price, they remain recognised in the balance sheet in their original category (investment securities). Repurchase agreements are recognised at fair value and subsequently measured at amortised cost. The cash consideration received is recognised as a liability. As at 31 December 2024, K295 million (2023: nil) recognised in items in transit and all other liabilities. 8 9 8 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 22. Credit Risk and Asset Quality (continued) 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 BBB+ Standard Monitoring 2 BBB 3 BBB- 4 BB+ 5 BB 6 BB- 7 B+ 8 B 9 B- 10 CCC+ Special Monitoring 11 CCC 12 CCC- Substandard 13 D–I Doubtful 14 D–II Loss 22.1.2 Expected credit loss measurement 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 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 22.1.2.1 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 22.1.2.2 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 22.1.2.3 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 22.1.2.3 includes an explanation of how the Group has incorporated this in its ECL models. The following diagram summarises the impairment requirements under IFRS 9. Change in credit quality since initial recognition Stage 1 Stage 2 Stage 3 (Initial recognition) (Significant increase in credit risk since initial recognition) (Credit-impaired assets) 12-month expected credit losses Lifetime expected credit losses Lifetime expected credit losses Risk Management 21. Risk Management Framework and Controls 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 Board Audit and Compliance Committee, Board Risk Committee and ultimately to the Board of Directors. 22. Credit Risk and Asset Quality 22.1 Credit risk The Group incurs risk with regard to loans and 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 ensuring risk is diversely spread across personal and commercial customers. 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 (reporting to the Board through the Group 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. 22.1.1 Credit risk measurement Loans and advances (including 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 Group 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. 91 9 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 22. Credit Risk and Asset Quality (continued) 22.1.2.3 Measuring ECL – Explanation of inputs, assumptions and estimation 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 are 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-impaired” 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 counterparty, 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 product type. 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 into current parameters are examples of such circumstances. The Group used statistical models to convert historical PDs into forward looking lifetime PDs. The conversion process looks at the historical relationship 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 (systematic factors) impacting credit risk and expected credit losses which are as follows: • GDP Growth (%) • Change in Unemployment (%) • Change in Equity Index (%) • 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 economy 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. 22. Credit Risk and Asset Quality (continued) The key judgements and assumptions adopted by the Group in addressing the requirements of the standard are discussed below: 22.1.2.1 Significant increase in credit risk The Group considers a financial instrument to have experienced a significant increase in credit risk when one or more of the following quantitative, 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 BSP’s credit rating system which are ‘watch list’ categories. By definition, these have experienced a SICR event since inception hence need to be classified as Stage 2, with lifetime PDs applicable. This criteria applies regardless of whether loans in these two risk grades are in arrears or not. • Backstop – A backstop is applied and the financial instrument considered 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 financial instrument in the year ended 31 December 2024. 22.1.2.2 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 borrower 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 borrower’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 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 instrument returning to default status after cure using different possible cure definitions. 9 3 9 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 22. Credit Risk and Asset Quality (continued) Sensitivity Analysis As described above, the Group applies 3 alternative macroeconomic scenarios (base, upside, downside scenarios) to reflect an unbiased probability weighted range of possible future outcomes in estimating ECL. The most significant assumptions affecting the ECL allowance are as follows: i) GDP given the significant impact on business performance and collateral valuations; 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. Set out below are approximate levels of provisions for impairment under the base and downside scenarios for the group assuming 100% weighting was applied to each scenario holding all other assumptions constant. All amounts are expressed in K’000 2024 2023 Reported probability weighted ECL 562,456 712,238 100% base scenario 537,869 644,209 100% downside scenario 591,426 760,560 Sensitivity of provisions for impairment to SICR assessment criteria • If 1% of Stage 1 credit exposures as at 31 December 2024 was included in Stage 2, provisions for impairment would approximately increase by K7.401 million for the bank. (31 December 2023 K8.022 million). • If 1% of Stage 2 credit exposures as at 31 December 2024 was included in Stage 1, provisions for impairment would approximately decrease by K0.206 million for the bank. (31 December 2023 K0.247 million). 22.1.2.4 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) 22. Credit Risk and Asset Quality (continued) Economic variable assumptions The period-end assumptions used for the ECL estimate as at 31 December 2024 are set out below. The scenarios “base”, “upside” and “downside” were used for all portfolios. 2024 2025 2026 2027 2028 GDP Growth (%) Base 3.5% 3.3% 3.3% 3.3% 3.3% Upside 4.0% 3.4% 3.8% 3.8% 3.8% Downside 3.1% 3.0% 2.8% 2.8% 2.8% Change in Unemployment Base –3.5% –3.3% –3.3% –3.3% –3.3% (% total lab force) (%) Upside –4.0% –3.4% –3.8% –3.8% –3.8% Downside –3.1% –3.0% –2.8% –2.8% –2.8% Change in Equity Index (%) Base 22.0% Upside 23.0% Downside 21.0% Change in Energy Index (%) Base –6.3% –2.1% –2.1% –2.1% –2.1% Upside –6.6% –2.2% –2.2% –2.2% –2.2% Downside –5.9% –2.0% –2.0% –2.0% –2.0% Change in Non-Energy Index (%) (Per World Bank commodities price forecast) Base –3.0% –1.2% –1.2% –1.2% –1.2% Upside –3.2% –1.3% –1.3% –1.3% –1.3% Downside –2.9% –1.1% –1.1% –1.1% –1.1% Change in the Proportion of Downgrades (%) Base –6.0% Upside –15.0% Downside 15.0% The weightings assigned to each economic scenario at 31 December 2024 were as follows: Scenario Base Upside Downside Weight 50% 10% 40% 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. 9 5 9 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 22. Credit Risk and Asset Quality (continued) 22.1.3.2 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 possession 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: 31 December 2024 Consolidated All amounts are expressed in K’000 Gross exposure Impairment allowance Carrying amount Fair value of collateral held Credit-impaired assets Loans to individuals: – Overdrafts 35,084 8,422 26,662 24,117 – Credit cards 154 154 – – – Term loans 43,649 28,227 15,422 46,186 – Mortgages 182,954 79,412 103,542 230,932 Loans to corporate entities: – – – – – Large corporate customers 277,890 133,319 144,571 215,926 – Small and medium-sized enterprises (SMEs) 87,449 40,373 47,076 111,573 – Others 322 196 126 872 Total credit-impaired assets 627,502 290,103 337,399 629,606 31 December 2023 Total credit-impaired assets 664,400 291,497 372,903 750,247 Impairment allowance is assessed for each counterparty giving regard to collateral held for the respective exposure. 22. Credit Risk and Asset Quality (continued) 22.1.3 Credit risk exposure 22.1.3.1 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. All amounts are expressed in K’000 ECL staging 2024 2023 Stage 1 12-month Stage 2 Lifetime Stage 3 Lifetime Total Total Credit grade Standard monitoring 15,839,041 197,692 – 16,036,733 15,690,659 Special monitoring – 168,062 – 168,062 370,201 Default – – 627,502 627,502 664,400 Gross carrying amount 15,839,041 365,754 627,502 16,832,297 16,725,260 Loss allowance (211,978) (18,081) (290,103) (520,162) (657,432) Net Carrying amount 15,627,063 347,673 337,399 16,312,135 16,067,828 Information on how the Expected Credit Loss (ECL) is measured and how the three stages above are determined is included in note 15 ‘Expected credit loss measurement’. The total balance of investment securities measured at amortised cost K9,075.916 million (2023: K9,635.724 million) is classified as Stage 1 with a credit grade of ‘standard monitoring’. Total loss allowance carried against this balance is K55.252 million (2023: K55.429 million). The following table contains an analysis of the maximum credit risk exposure from financial assets not subject to impairment (i.e. FVPL): Maximum exposure to credit risk All amounts are expressed in K’000 2024 2023 Trading assets Equity securities 333,259 313,860 9 7 9 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 22. Credit Risk and Asset Quality (continued) 22.1.6 Economic sector risk concentrations Economic sector risk concentrations within the customer loan portfolio are as follows: Consolidated As at 31 December 2024 All amounts are expressed in K’000 2024 % 2023 % Commerce, finance and other business 8,110,804 50 7,759,590 48 Private households 4,335,401 27 4,331,761 27 Government and public authorities 647,899 4 696,574 4 Agriculture 200,478 1 367,284 2 Forestry 1,539 – 3,810 – Transport and communication 1,368,355 8 1,216,261 8 Manufacturing 451,487 3 429,990 3 Construction 1,153,878 7 1,207,752 8 Net loan portfolio balance 16,269,841 100 16,013,022 100 22.1.7 Loan segment concentration Concentration by customer loan segments is as follows: Consolidated As at 31 December 2024 All amounts are expressed in K’000 2024 % 2023 % Corporate/Commercial 9,405,533 58 9,224,478 58 Government 2,056,288 13 2,234,613 14 Retail 4,808,020 29 4,553,931 28 Net loan portfolio balance 16,269,841 100 16,013,022 100 22.1.8 Impact of overlays on the provision for ECL The following table attributes the breakup between modelled ECL and other economic overlays. Where there is increased uncertainty regarding the required forward-looking economic conditions under IFRS 9, or limitations of the historical data used to calibrate the models to current stressed environments, overlays are typically used to address areas of potential risk not captured in the underlying modelled ECL. All amounts are expressed in K’000 2024 2023 Modelled provision for ECL (Stage 1 and 2) 264,944 396,008 Overlays 7,409 24,733 Total 272,353 420,741 23. Liquidity Risk 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. 22. Credit Risk and Asset Quality (continued) 22.1.4 Credit Quality – Prudential guidelines The prudential standard maintained by the Bank of Papua New Guinea specifies detailed criteria for the classification of loans into various grades of default risk and corresponding loss provision levels as a consequence of those grades. An analysis by credit quality of loans outstanding at 31 December 2024 is as follows: Consolidated As at 31 December 2024 All amounts are expressed in K’000 Overdrafts Term loans Mortgages Lease financing Total 2023 Neither past due nor impaired 1,058,263 10,675,486 2,561,383 196,838 14,491,970 14,718,890 Past due but not impaired Less than 30 days 19,939 173,977 81,316 300 275,532 819,404 30 to 90 days 48,996 945,552 435,231 7,514 1,437,293 522,566 68,935 1,119,529 516,547 7,814 1,712,825 1,341,970 Individually impaired loans Less than 30 days 1,741 3,345 5,327 17 10,430 12,950 30 to 90 days 1,772 36,697 36,237 4,295 79,001 131,155 91 to 360 days 2,563 23,469 38,134 474 64,640 124,797 More than 360 days 27,380 288,409 149,884 7,758 473,431 395,498 33,456 351,920 229,582 12,544 627,502 664,400 Total gross loans and receivables from customers 1,160,654 12,146,935 3,307,512 217,196 16,832,297 16,725,260 Less impairment provisions (282,125) (179,728) (95,235) (5,368) (562,456) (712,238) Net loans and receivables from customers 878,529 11,967,207 3,212,277 211,828 16,269,841 16,013,022 22.1.5 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 cannot 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. 9 9 9 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 24. Operational Risk 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 organisation’s compliance with them. The Operational Risk Committee coordinates the management process across the organisation. 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 Committee and Board Audit and Compliance Committee. 25. 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 As at 31 December 2024 All amounts are expressed in K’000 PGK FJD SBD USD Other Total Assets Cash and balances with Central Banks 2,879,405 1,903,613 905,783 12,944 915,245 6,616,990 Amounts due from other banks 48,597 472,377 4,211 790,328 558,665 1,874,178 Treasury and Central Bank Bills 2,429,758 – 22,611 – 65,283 2,517,652 Loans and receivables from customers 9,768,799 4,545,685 472,605 215,790 1,266,962 16,269,841 Other financial assets 6,505,837 606,805 – – 45,329 7,157,971 Other assets 1,359,467 1,085,233 81,838 – 160,181 2,686,719 Total assets 22,991,863 8,613,713 1,487,048 1,019,062 3,011,665 37,123,351 Liabilities Amounts due to other banks 40,081 (230,856) (1,070) – (68,353) (260,198) Customer deposits (18,742,406) (5,418,632) (1,105,614) (1,013,553) (2,802,756) (29,082,961) Other liabilities (1,108,696) (1,882,746) (50,957) (1,296) (83,431) (3,127,126) Total liabilities (19,811,021) (7,532,234) (1,157,641) (1,014,849) (2,954,540) (32,470,285) Net on-balance sheet position 3,180,842 1,081,479 329,407 4,213 57,125 4,653,066 Off-balance sheet position – – – 197 (411) (214) Credit commitments 1,292,299 2,207,475 42,703 – 287,792 3,830,269 23. Liquidity Risk (continued) Short-term mismatch of asset and liability maturity at 31 December 2024 The maturity profile of material Assets and Liabilities as at 31 December 2024 is shown in the following table. 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. Liquidity management is centrally coordinated by Group Treasury, with oversight from the Asset and Liability Committee (ALCO). The Group’s Liquidity Policy provides a standalone framework for assessing the behavioural maturity of the deposit portfolio, ensuring the Group’s ability to meet obligations under various market conditions. Maturity of assets and liabilities (gross contractual cash flows) Consolidated As at 31 December 2024 All amounts are expressed in K’000 Up to 1 month 1–3 months 3–12 months 1–5 years Over 5 years Total Assets Cash and balances with Central Banks 4,097,577 – – – 2,519,413 6,616,990 Amounts due from other banks 1,469,589 230,434 151,643 22,512 – 1,874,178 Treasury and Central Bank bills 739,893 775,477 1,000,747 39,025 – 2,555,142 Loans and receivables from customers 5,546,296 1,003,178 2,263,785 6,942,400 5,109,473 20,865,132 Other financial assets 1,168,640 123,479 799,320 2,973,439 4,782,329 9,847,207 Total assets 13,021,995 2,132,568 4,215,495 9,977,376 12,411,215 41,758,649 Liabilities Amounts due to other banks 160,528 79,124 19,031 – 1,515 260,198 Customer deposits 27,059,550 403,631 1,178,437 168,790 468,832 29,279,240 Lease liability – – – 164,769 103,174 267,943 Other liabilities 1,992,042 3,061 693,350 45,644 92,154 2,826,251 Other provisions 196,253 15 22,052 372 23,677 242,369 Total liabilities 29,408,373 485,831 1,912,870 379,575 689,352 32,876,001 Net liquidity gap (16,386,378) 1,646,737 2,302,625 9,597,801 11,721,863 8,882,648 Consolidated As at 31 December 2023 All amounts are expressed in K’000 Up to 1 month 1–3 months 3–12 months 1–5 years Over 5 years Total Assets Cash and balances with Central Banks 3,858,283 – 28,640 – 2,260,974 6,147,897 Amounts due from other banks 1,463,862 307,699 8,116 – – 1,779,677 Treasury and Central Bank bills 36,256 715,087 2,726,254 364,318 – 3,841,915 Loans and receivables from customers 6,096,831 301,977 3,351,832 7,539,375 3,135,371 20,425,386 Other financial assets 1,467,440 71,666 1,020,700 4,568,393 3,616,630 10,744,829 Total assets 12,922,672 1,396,429 7,135,542 12,472,086 9,012,975 42,939,704 Liabilities Amounts due to other banks 227,366 39,862 71,739 24,698 – 363,665 Customer deposits 27,548,734 774,518 1,401,126 329,766 438,841 30,492,985 Lease liability – – – 152,613 127,203 279,816 Other liabilities 1,495,713 1,098 540,418 126,696 77,825 2,241,750 Other provisions 197,382 – 8,269 – – 205,651 Total liabilities 29,469,195 815,478 2,021,552 633,773 643,869 33,583,867 Net liquidity gap (16,546,523) 580,951 5,113,990 11,838,313 8,369,106 9,355,837 101 10 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 25. Foreign Exchange Risk (continued) Currency concentration of assets, liabilities, and off-balance sheet items Forward exchange contracts outstanding at 31 December 2024 stated at the face value of the respective contracts are: All amounts are expressed in ’000 As at 31 December 2024 USD AUD EURO GBP JPY Other Total FCY (863) – – – (127,104) (584) – Selling Kina (3,453) – – – (3,255) (2,336) (9,044) FCY 912 6 – – 135,000 427 – Buying Kina 3,650 16 – – 3,457 1,707 8,830 As at 31 December 2023 USD AUD EURO GBP JPY Other Total FCY (991) (21) – – (100,324) (1,075) – Selling Kina (3,695) (52) – – (2,645) (4,008) (10,400) FCY 1,236 178 149 – 1,241 1,269 – Buying Kina 4,608 453 614 – 33 4,731 10,439 26. 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 Liability 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. 25. Foreign Exchange Risk (continued) Consolidated As at 31 December 2023 All amounts are expressed in K’000 PGK FJD SBD USD Other Total Assets Cash and balances with Central Banks 2,776,705 1,500,354 823,272 12,575 1,034,991 6,147,897 Amounts due from other banks 43,070 380,822 4,880 796,861 554,044 1,779,677 Treasury and Central Bank Bills 3,751,720 – 21,431 – 30,447 3,803,598 Loans and receivables from customers 10,293,112 4,036,379 476,469 280,171 926,891 16,013,022 Other financial assets 5,765,279 567,619 – – 40,553 6,373,451 Other assets 1,586,730 1,012,874 101,820 – 132,218 2,833,642 Total assets 24,216,616 7,498,048 1,427,872 1,089,607 2,719,144 36,951,287 Liabilities Amounts due to other banks (39,162) (247,495) – – (77,008) (363,665) Customer deposits (20,770,906) (4,565,672) (1,073,168) (880,186) (2,545,179) (29,835,111) Other liabilities (747,358) (1,624,178) (55,959) (3,814) (77,872) (2,509,181) Total liabilities (21,557,426) (6,437,345) (1,129,127) (884,000) (2,700,059) (32,707,957) Net on-balance sheet position 2,659,190 1,060,703 298,745 205,607 19,085 4,243,330 Off-balance sheet position – – – 913 (874) 39 Credit commitments 1,775,078 1,442,267 49,880 – 233,901 3,501,126 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: 2024 2023 All amounts are expressed in K’000 Impact on profit or loss Impact on equity Impact on profit or loss Impact on equity USD strengthening by 5% (2023 – 5%) 219 219 (713) (713) USD dollar weakening by 15% (2023 – 15%) (544) (544) 1,768 1,768 AUD strengthening by 5% (2023 – 5%) 296 296 128 128 AUD dollar weakening by 15% (2023 – 15%) (735) (735) (316) (316) 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. 10 3 10 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 27. Fair Values of Financial and Non‑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 As at 31 December 2024 Level 1 Level 2 Level 3 Total a) Financial assets Equity securities – 333,259 4,105 337,364 Treasury Bills – 13,542 – 13,542 Government Inscribed Stock – 308,158 – 308,158 Non-financial assets Land and buildings – – 570,875 570,875 Investment properties – – 388,008 388,008 Aircraft subject to operating lease – – 30,006 30,006 Total assets – 654,959 992,994 1,647,953 b) Financial liabilities Insurance contract liabilities – – (1,437,650) (1,437,650) Total liabilities – – (1,437,650) (1,437,650) Consolidated All amounts are expressed in K’000 As at 31 December 2023 Level 1 Level 2 Level 3 Total a) Financial assets Equity securities – 308,085 5,775 313,860 Treasury Bills – 5,018 – 5,018 Government Inscribed Stock – 277,876 – 277,876 Non-financial assets Land and buildings – – 582,448 582,448 Investment properties – – 363,166 363,166 Aircraft subject to operating lease – – 32,387 32,387 Total assets – 590,979 983,776 1,574,755 b) Financial liabilities Insurance contract liabilities – – (1,249,512) (1,249,512) Total liabilities – – (1,249,512) (1,249,512) 26. Interest Rate Risk (continued) Interest sensitivity of assets, liabilities and off balance sheet items Consolidated All amounts are expressed in K’000 Up to 1 month 1–3 months 3–12 months 1–5 years Over 5 years Non- interest bearing As at 31 December 2024 Assets Cash and Balances with Central Banks 1,369,192 – – – – 1,992,424 Amounts due from other banks 610,146 245,809 191,877 22,512 – 803,834 Treasury and Central Bank Bills 746,421 792,546 978,685 – – – Cash reserve requirement with Central Banks – – – – – 3,255,374 Loans and receivables from customers 12,446,463 151,869 895,053 2,144,181 558,611 73,664 Other financial assets 65,421 491,053 1,117,773 2,990,154 2,493,570 – Other assets 122,423 66,092 3,115 – – 2,495,089 Total assets 15,360,066 1,747,369 3,186,503 5,156,847 3,052,181 8,620,385 Liabilities Amounts due to other banks 103,070 77,279 19,031 – – 60,818 Customer deposits 10,604,347 709,587 1,377,522 157,908 86 16,233,511 Other liabilities 309,832 77 178 276,185 59,245 2,180,735 Other provisions 4,897 – 1,795 – – 294,182 Total liabilities 11,022,146 786,943 1,398,526 434,093 59,331 18,769,246 Interest sensitivity gap 4,337,920 960,426 1,787,977 4,722,754 2,992,850 (10,148,861) As at 31 December 2023 Assets Cash and Balances with Central Banks 1,060,602 – – – – 2,245,483 Amounts due from other banks 1,123,433 276,504 102,205 – – 277,535 Treasury and Central Bank Bills 15,982 707,187 3,080,429 – – Cash reserve requirement with Central Banks – – – – – 2,841,812 Loans and receivables from customers 5,470,385 109,640 2,363,761 5,118,239 2,872,444 78,553 Other financial assets 33,022 231,671 870,822 3,348,886 1,889,050 – Other assets 63,894 81,322 958 – – 2,687,468 Total assets 7,767,318 1,406,324 6,418,175 8,467,125 4,761,494 8,130,851 Liabilities Amounts due to other banks 155,666 39,862 71,739 24,698 – 71,700 Customer deposits 9,521,996 953,752 1,395,089 203,826 47 17,760,401 Other liabilities – 21 72 266,846 69,960 1,904,850 Other provisions 3,942 – – – – 263,490 Total liabilities 9,681,604 993,635 1,466,900 495,370 70,007 20,000,441 Interest sensitivity gap (1,914,286) 412,689 4,951,275 7,971,755 4,691,487 (11,869,590) Given the profile of assets and liabilities as at 31 December 2024 and prevailing rates of interest, a 1% increase in rates will result in a K33.686 million (2023: K29.012 million) increase in net interest income, whilst a 1% decrease in rates will result in a K97.052 million (2023: K70.518 million) decrease in net interest income. 10 5 10 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 Capital and Dividends 28. Ordinary Shares Accounting Policy Share issue costs External costs directly attributable to the issue of new shares are deducted from equity net of any related income taxes. Number of shares in ‘000s, Book value in K’000 Number of shares Book value At 1 January 2023 467,220 372,110 31 December 2024 467,220 372,110 Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are declared. Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Dividends paid on ordinary shares Interim ordinary dividend (2024: 45 toea; 2023: 37 toea) 211,715 174,010 210,249 172,869 Final ordinary dividend (2023: 106 toea; 2022: 140 toea) 500,969 657,803 495,272 654,237 712,684 831,813 705,521 827,106 In accordance with the Papua New Guinea Companies Act 1997 the shares have no par value. The Group’s securities consist of ordinary shares which have equal participation and voting rights. 29. Retained Earnings and Other Reserves Retained earnings Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 At 1 January 3,415,689 3,359,184 2,963,899 2,991,169 Net profit for the year 1,037,711 890,215 1,035,662 800,826 Final dividends paid (500,969) (657,606) (495,272) (654,237) Interim dividends paid (211,715) (174,010) (210,249) (172,869) Disposal of assets – transfer from asset revaluation 1,746 1,632 1,751 1,462 Amalgamation of Finance PNG with PNG Bank (Note 38) – – 44,468 – Other – (1,103) – – BSP Life policy reserve (9,494) (2,452) (9,494) (2,452) Gain attributable to minority interest (384) (171) – – At 31 December 3,732,584 3,415,689 3,330,765 2,963,899 Other reserves comprise: Asset revaluation reserve 145,000 134,205 124,442 110,381 Capital reserve 635 635 635 635 Equity component of Fiji Class Shares 21,578 21,578 – – Statutory insurance reserve 71,882 62,388 71,882 62,388 Foreign currency translation reserve 274,543 236,024 154,533 129,776 At 31 December 513,638 454,830 351,492 303,180 27. Fair Values of Financial and Non‑Financial Assets and Liabilities (continued) Consolidated Financial assets at fair value through profit and loss All amounts are expressed in K’000 Level 3 2024 2023 Opening balance 983,776 872,220 Total gains and losses recognised in: – Profit and loss (33,313) (31,582) – Other comprehensive income 16,790 51,029 – Purchases 33,497 45,358 – Disposals (1,472) (1,628) – Translation movements (6,167) 48,379 Closing balance 993,111 983,776 There were no changes in valuation technique for Level 3 recurring fair value measurements during the year ended 31 December 2024. Property, plant and equipment represents commercial land and buildings owned and occupied. Investment properties represent land and buildings owned and leased out by the Group. Assets subject to operating lease relate to aircraft owned and leased out by the Group. Property, plant and equipment, Investment property and Assets subject to operating lease are valued based on valuations provided by independent valuers. The frequency of valuations complies with Group policy. The significant inputs used in preparing the valuations relate to: • Selling prices of similar properties and aircraft • Maintenance costs • Replacement costs The fair value of the land and buildings and aircraft are classified as level 3 within the fair value hierarchy due to the use of the above mentioned unobservable inputs. Sensitivities to reasonably possible changes in non-market observable valuation assumptions would not have a material impact on the Groups’ reported results. 10 7 10 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 30. 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 Solomon Islands, Vanuatu, Fiji, Samoa, Tonga, Cook Islands, Cambodia and Laos 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), the National Bank of Cambodia (NBC) and Bank of Laos P.D.R. 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 prescribes the leverage capital ratio. The Group complies with the prevailing prudential requirements for total capital and leverage capital. As at 31 December 2024, 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 (unaudited): Balance sheet/ notional amount Risk-weighted amount All amounts are expressed in K’000 2024 2023 2024 2023 Balance sheet assets (net of provisions) Currency 6,616,990 6,147,897 30,087 46,447 Loans and receivables from customers 16,129,056 15,860,753 13,027,973 12,585,259 Investments and short term securities 9,540,231 10,061,461 383,877 336,077 All other assets 4,837,074 4,881,176 2,695,775 2,736,278 Off-balance sheet items 3,830,055 3,501,165 228,542 212,668 Total 40,953,406 40,452,452 16,366,254 15,916,729 Capital ratios a) Tier 1 capital 3,958,804 3,496,941 24.2% 22.0% Total Capital 4,294,489 3,881,320 26.2% 24.4% b) Leverage Capital Ratio 10.8% 9.6% 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%. 29. Retained Earnings and Other Reserves (continued) Other reserves Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Movement in reserves for the year: Asset revaluation reserve At 1 January 134,205 96,873 110,381 83,180 Net asset revaluation increment/(decrement) (2,764) 38,349 503 28,048 Transfer asset revaluation reserve to retained earnings (1,746) (1,632) (1,751) (1,462) Others (4) – – – Impact of PNG tax rate change 14,561 – 14,561 – Release of deferred tax on disposal of assets 748 615 748 615 At 31 December 145,000 134,205 124,442 110,381 Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Capital reserve At 1 January 635 635 635 635 At 31 December 635 635 635 635 Statutory insurance reserve At 1 January 62,388 59,936 62,388 59,936 BSP Life policy reserve 9,494 2,452 9,494 2,452 At 31 December 71,882 62,388 71,882 62,388 Foreign currency translation reserve At 1 January 236,024 140,859 129,776 81,225 Movement during the year 38,519 94,112 24,757 48,551 Other – 1,053 – – At 31 December 274,543 236,024 154,533 129,776 Equity component of convertible notes 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: i) The right to receive a dividend equal to the amount of dividend to be paid on BSP Ordinary Shares. 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. 10 9 10 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 31. Insurance (continued) A. Definitions and Classifications Insurance contracts are contracts by which the Company accepts significant insurance risk from a policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. This assessment is made on a contract-by-contract basis at the contract issue date. The Company assesses, on a group of contract basis, whether participating contracts meet the definition of insurance contracts with direct participating features. The Company uses its judgement to assess whether the amount expected to be paid to the policyholder constitutes a substantial share of fair value returns from the underlying items and whether the variable cash flows represent a substantial proportion of the cash flows. B. Level of aggregation applied to Insurance Contracts IFRS 17 requires insurance contracts to be recognised and measured in groups. The grouping of individual contracts under IFRS 17 is performed to limit the offsetting of profitable contracts against onerous ones regarding how insurers manage and evaluate their business performance. A portfolio of Contracts is defined based on Contracts that have similar risks and are managed together. The Portfolio is further divided into groups based on the year of issue and the expected level of profitability. The Company issues two types of long-term products Participating and Non-Participating products. The products falling under each category have similar risks and have been managed together (risk transfer and risk pooling). C. Recognition The Company recognises groups of insurance contracts from the earliest of the following: • the beginning of the coverage period; • the date when the first payment from a policyholder in the group becomes due; and • the date when a group of contracts becomes onerous. D. Contract boundary The Company includes in the measurement of a group of insurance contracts all the future cash flows expected to arise within the boundary of each of the contracts in the group. In determining the cash flows within the boundary of an insurance contract, the Company assesses whether it arises from substantive rights and obligations that exist during the reporting period in which the Company can compel the policyholder to pay the premiums or the Company has the substantive obligation to provide the policyholder with services. Cash flows outside the insurance contract boundary relate to future insurance contracts and are recognised when those contracts meet the recognition criteria. E. Measurement of insurance contract issued i) Measurement on initial recognition for contracts other than PAA A group of insurance contracts are measured on initial recognition as the sum of the expected fulfilment cash flows within the contract boundary and the contractual service margin representing the unearned profit in the contract relating to services that will be provided under the contracts. Fulfilment cash flows (FCF) The FCF are the current unbiased and probability-weighted estimates of the present value of the future cash flows, including a risk adjustment for non-financial risk. The Company considers a range of scenarios to establish a full range of possible outcomes without undue cost or effort about the amount, timing and uncertainty of expected future cash flows to arrive at the probability weighted value. The estimates of future cash flows reflect conditions existing at the measurement date including assumptions at that date regarding the future. Discount rates The time value of money and financial risk is measured separately from the expected future cash flows with changes in financial risks recognised in the profit or loss at the end of each reporting period. The Company measures the time value of money for all portfolios of participating, non-participating and riders using a point estimator given the maturity of the market and the lack of availability of market data. Expected cash flows that vary based on the returns on any financial underlying items are discounted using the top‑down approach. The discount assumption is set using the expected earnings on the assets supporting the liability and this has been determined using market observed reference assets and the anticipated margin for each asset category relative to the performance of the reference asset. Group Structure 31. Insurance The Group’s consolidated Financial Statements include the assets, liabilities, income and expense of the life and general insurance businesses. The Group’s insurance business is made up of Life Insurance Contracts, Medical Insurance and Term Life Insurance. Insurance Contract products are provided by BSP Life (Fiji) Limited and BSP Life PNG Limited (collectively referred to in this note as the Company.) Summary of Measurement Approach The company uses different measurement approaches, depending on the type of contracts as noted below: Product classification Measurement Model Component of Contracts Issued Participating Base Products Insurance contracts with Direct participating features VFA Riders of Participating Base Products Insurance contracts GMM Non-Participating Contract (including associated riders) Insurance contracts GMM Reinsurance Contracts held Term Life and Disability – Surplus Reinsurance Reinsurance contract held GMM Term Life and Disability – Catastrophe Insurance Cover Reinsurance contract held PAA The Company does not have any reinsurance contract issued, that qualify as insurance contacts under IFRS 17. IFRS 17 defines a General Measurement Model (GMM) to use for valuing Insurance Contracts, with two modifications of this model applicable under certain circumstances. The GMM requires the projection of future cash flows related to insurance contracts using current financial and non-financial assumptions. The two other modifications of the GMM are described below; • The Variable Fee Approach (VFA), insurance contracts with direct participation features are eligible to use this model. The model allows for the variable nature of fees that the Company earns from the Insurance Contracts, which depend on the underlying assets’ performance. • The Premium Allocation Approach (PAA) is a simplified model which does not require future projections to satisfy the requirements under IFRS 17, provided that the Insurance Contracts sold are profitable. 111 110 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 31. Insurance (continued) iii) Subsequent measurement for Reinsurance contracts other than PAA Changes in fulfilment cash flows At the end of each reporting period, the Company updates the fulfilment cash flows to reflect the current estimates of the amounts, timing and uncertainty of future cash flows and discount rates. Experience adjustment Experience adjustments in relation to current or past service are recognised in the profit or loss, hence, incurred claims (including incurred but not reported) and other incurred insurance service expenses are included in the profit or loss. Experience adjustments in relation to future service are included in adjustments to the CSM. The carrying amount of the CSM is adjusted at the end of the reporting period to reflect changes in the FCF applying the same approach as for insurance contracts issued, expect that the change in carrying amount can cause the CSM to be negative. Recognition of the CSM in profit or loss CSM amount is released to profit or loss in each period during which the insurance contract services are provided. The CSM amount to be released in each reporting period is determined as the coverage unit provided for the period as a percentage of the total expected coverage unit, applied to the CSM at the end. The total number of coverage units in the group is determined by considering for each contract the quantity of benefits provided under the contract and the expected coverage period. The total coverage unit, except for Participating Base Contracts, is calculated by discounting future coverage unit at the risk free discount rate. The CSM at the end of the reporting period is equally allocated to each of the coverage units provided in the current period and expected to be provided in the future. The CSM recognised in the profit or loss reflects the amount of CSM allocated to the coverage units provided during the period. iv) Onerous Contracts The onerous assessment is done on an individual contract level assessing future expected cash flows on a probability‑weighted basis including a risk adjustment for non‑financial risk. On initial recognition, the contracts expected to be loss making are grouped together and such groups are measured and presented separately. Once contracts are allocated to a group, they are not re‑allocated unless they are substantively modified. For Participating Base Products, the onerous assessment takes into consideration the cashflow between the contracts in the Group of Contracts. A group of insurance contracts become onerous when the adjustment to the CSM exceeds the amount of CSM and the Company recognises the excess in insurance service expenses and records it as a loss component of the LRC. After a loss component is recognised, the Company allocates any subsequent changes in FCF of the LRC on a systematic basis between the loss component and the LRC excluding the loss component. F. Contracts measured under the fair value The Company applied the fair value approach for those contracts issued more than 5 years prior to the date of transition to IFRS 17. This decision was made noting the significant time and effort needed to construct the transaction data required at the level to apply the requirements of IFRS 17 prior to this period. Level of aggregation The Company included contracts issued prior to January 2018 into one group split by portfolios of insurance contracts and applied the fair value approach as at December 2017. Fair valuation of liabilities of insurance contracts The fair value of liabilities has been determined per IFRS 13 Fair Value Measurement. There are no recent transactions or comparable markets for life insurance liabilities. In measuring the fair value, the approach taken is: • The discounted value of projected cash flows relating to in-force life insurance contracts using assumptions reflecting past and expected future experience from the perspective of a potential purchaser. • Plus allowance for the cost of holding statutory capital that a market participant acquiring the contracts would be required to bear. Using a risk-adjusted discount rate to reflect the perspective of a potential purchaser. Fulfilment cash flows The fulfilment cash flows were estimated prospectively as at the transition date. Contractual service margin The CSM was estimated to be the difference between the fair value of a group of insurance contracts, measured in accordance with IFRS 13 as described above, and its FCF as at the transition date. 31. Insurance (continued) Risk adjustment for non-financial risk The Company measures the compensation it would require for bearing the uncertainty about the amount and timing of cash flows arising from insurance contracts, other than financial risk separately as an adjustment for non- financial risk. The Company uses cost of capital method in estimating the risk adjustment. The cost of capital approach uses the basis that Company’s risk preference is based on the capital that it requires to hold which is appropriate for the non-financial risks that are relevant to IFRS 17 measurement objectives. Contractual service margin (CSM) The CSM is a component of the overall carrying amount of a group of insurance contracts representing unearned profit the Company will recognise as it provides insurance contract services over the coverage period. Coverage Period The Company determines, at initial recognition, the group’s coverage units and allocates the group’s CSM based on the coverage units provided in the period. The Company determines coverage units as follows: • For the Participating Base product, the coverage unit is linked to the bonus declared on these contracts, as this is the more significant service provided under the contract. • For all the other portfolios, the coverage being provided is death cover linked to a predetermined amount, which is the sum insured. The sum insured will be used as the coverage unit. Insurance acquisition cash flows The Company includes insurance acquisition cash flows in the measurement of a group of insurance contracts if they are directly attributable either to the individual contracts in a group, or to the group itself, or the portfolio of insurance contracts to which the group belongs. The Company estimates at a portfolio level insurance acquisition cash flows not directly attributable to the group but directly attributable to the portfolio and then allocates them to the group of newly written and renewed contracts on a systematic and rational basis. ii) Subsequent measurement for contracts other than PAA Subsequent to initial recognition, at the end of each reporting period, the carrying amount of the group of insurance contracts will reflect a current estimate of the liability for remaining coverage (LRC) as at that date and a current estimate of the liability for incurred claims (LIC). The LRC represents the Company’s obligation to investigate and pay valid claims under existing contracts for insured events that have not yet occurred, and amounts that relate to other insurance contract services not yet provided, comprising of the fulfilment cash flows relating to future service and the CSM yet to be earned. The LIC includes the Company’s liability to pay valid claims for insured events that have already incurred, other incurred insurance expenses arising from past coverage service and includes the liability for claims incurred but not yet reported. It also includes the Company’s liability to pay amounts the Company is obliged to pay the policyholder under the contract, including repayment of investment components, when a contract is derecognised. The current estimate of LIC comprises of the fulfilment cash flows related to current and past service allocated to the group at the reporting date. Changes in fulfilment cash flows At the end of each reporting period, the Company updates the fulfilment cash flows to reflect the current estimates of the amounts, timing and uncertainty of future cash flows and discount rates. As all cashflows form a part of the underlying items for Participating Base Products, any experience adjustment or change in the estimate of future cash flow will impact future services, hence all items impact CSM. Recognition of the CSM in profit or loss CSM amount is released to profit or loss in each period during which the insurance contract services are provided. The CSM amount to be released in each reporting period is determined as the coverage unit provided for the period as a percentage of the total expected coverage unit, applied to the CSM at the end. The total number of coverage units in the group is determined by considering for each contract the quantity of benefits provided under the contract and the expected coverage period. The total coverage unit, except for Participating Base Contracts, is calculated by applying the discounted future coverage unit at the risk free discount rate. The CSM at the end of the reporting period is equally allocated to each of the coverage units provided in the current period and expected to be provided in the future. The CSM recognise in the profit or loss the amount of CSM allocated to the coverage units provided during the period. The CSM for reinsurance contracts held is released to the profit or loss as services are received from the reinsurer in the period. 11 3 11 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 31. Insurance (continued) (c) Reinsurance Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more contracts issued by the Company, 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 the 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. Financial Information The accounting policies of the consolidated entity, which have been applied in determining the financial information shown above, are the same as those applied in the consolidated financial statements. The summarised income statement for BSP Life (Group) is presented below as per the subsidiary’s accounts. The consolidated profit includes insurance profit and investment earnings on shareholder’s funds. All amounts are expressed in K’000 Life insurance General insurance and other items 2024 (Total) 2023 (Total) Insurance revenue 45,570 52,018 97,588 84,037 Insurance service expenses (23,041) (45,597) (68,638) (60,636) Insurance service result from insurance contracts issued 22,529 6,421 28,950 23,401 Net expenses from reinsurance contracts (653) (1,451) (2,104) (2,803) Insurance service result 21,876 4,970 26,846 20,598 Insurance finance income – investments 145,770 747 146,517 119,002 Net investment income 145,770 747 146,517 119,002 Insurance finance income/(expense) for insurance contracts issued (121,686) – (121,686) (105,331) Net insurance finance expenses (121,686) – (121,686) (105,331) Net insurance and investment result 45,960 5,717 51,677 34,269 Net income from subsidiaries 107,864 – 107,864 107,760 Other Income 9,546 2 9,548 11,103 Other Operating Expenses (110,280) (1,052) (111,332) (91,896) Net insurance operating income 53,090 4,667 57,757 61,236 31. Insurance (continued) Accounting Policy (a) Recognition and measurement Long-term insurance contracts These contracts insure human life events (for example death, survival, disability, and critical illness) over a long duration and are underwritten by BSP (Fiji) Life Limited and BSP Life PNG Limited. Guaranteed benefits paid on occurrence of the specified insurance event are fixed and for participating policies declared bonuses are also payable. Most of the policies have maturity and surrender benefits. Approximately 90% of the above contracts in the Group’s portfolio contain a Discretionary Participation Feature (DPF). This feature entitles the holder to receive, as a supplement to guaranteed benefits, additional benefits in the form of reversionary bonuses. The recognition and measurement of these contracts have been determined in accordance with IFRS 17. Short term contracts are not a material part of the BSP Financial Group’s operations. (b) Methods and assumptions Key assumptions used in determining the Policy Liabilities of the Group are as follows: (i) Discount rates For contracts which have a DPF, the discount rate used is linked to the assets which back those contracts. For Fiji for the year ended 31 December 2024 this was 4.782% per annum (2023: 4.946% 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 3.90% per annum was used at 31 December 2024 (2023: 3.90% per annum). These rates were based on the 10-year government bond rate as published by the regulator. (ii) 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 (2023: 3.5% per annum) for determining future expenses. (iii) Taxation The rates of taxation enacted or substantially enacted at the date of the valuation are assumed to continue into the future. (iv) Mortality and morbidity – Fiji 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 Company’s own experience. Mortality rates used are as follows by gender and insured amount: • Male and sum insured above FJ$200,000: 20% (2023: 20%) for base products and 65% (2023: 65%) for rider products of the FJ90–94 Male table for participating business in Statutory Fund 1. • Male and sum insured up to FJ$200,000: 48% (2023: 48%) for base products and 65% (2023: 65%) for rider products of the FJ90–94 Male table for participating business in Statutory Fund 1. • Female: An age setback of 3 years is applied to the Male rates above. (v) 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 in 2024 were the same as 2023 rates. (vi) Basis of calculation of surrender values Surrender values are determined by the Company. There have been no changes to surrender bases during the period (or the prior periods). (vii) 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. 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. The FCF include a projection of the declaration of future bonuses and their impact on claims. The supportable bonus rate that emerges from the Margin on Service valuation (valuation method for policyholder profit/ bonus management) as at 31 December 2024 for Participating Business is used as the IFRS 17 assumption. The policyholder retained earnings is added to the Insurance Contract Liability. 11 5 11 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 31. Insurance (continued) The reconciliation of the Life insurance contract liabilities as at 31 December 2023 is as follows: Liability for remaining coverage All amounts are expressed in K’000 Excluding loss component Loss component Policy Loans* Liability for incurred claims Total Opening assets (5,177) – – – (5,177) Opening liabilities 1,173,979 1,181 (121,342) 13,876 1,067,694 Net opening balance 1,168,802 1,181 (121,342) 13,876 1,062,517 Changes in the statement of profit or loss and OCI Insurance revenue (45,093) – – – (45,093) Insurance service expenses 19,682 (18) – 3,895 23,559 Insurance service result (25,411) (18) – 3,895 (21,534) Insurance finance expenses from insurance contracts recognised in profit and loss 118,953 41 – – 118,994 Investment components excluded from insurance revenue and insurance service expenses (145,475) – – 145,475 – Effect of movements in exchange rates 63,870 67 (6,925) 605 57,617 Total changes in the statement of profit or loss and OCI 11,937 90 (6,925) 149,975 155,077 Cash flows Premiums received 222,143 – – – 222,143 Insurance acquisition cash flows (25,736) – – – (25,736) Claims and other insurance service expenses paid (11,113) – (2,320) (151,896) (165,329) Others – – (5,126) – (5,126) Total cash flows 185,294 – (7,446) (151,896) 25,952 Net closing balance 1,366,033 1,271 (135,713) 11,955 1,243,546 Closing assets (5,966) – – – (5,966) Closing liabilities 1,371,999 1,271 (135,713) 11,955 1,249,512 Net closing balance 1,366,033 1,271 (135,713) 11,955 1,243,546 * Policy loans and Other Insurance related assets that are transferred at face value to LRC. 31. Insurance (continued) The reconciliation of the Life insurance contract liabilities as at 31 December 2024 is as follows: Liability for remaining coverage All amounts are expressed in K’000 Excluding loss component Loss component Policy Loans* Liability for incurred claims Total Opening contract assets (5,966) – – – (5,966) Opening insurance contract liabilities 1,371,999 1,271 (135,713) 11,955 1,249,512 Net opening balance 1,366,033 1,271 (135,713) 11,955 1,243,546 Changes in the statement of profit or loss and OCI Insurance revenue (45,570) – – – (45,570) Insurance service expenses 20,435 (337) – 2,943 23,041 Insurance service result (25,135) (337) – 2,943 (22,529) Insurance finance expenses from insurance contracts recognised in profit and loss 120,738 48 – – 120,786 Investment components excluded from insurance revenue and insurance service expenses (136,956) – – 162,486 25,530 Effect of movements in exchange rates 7,633 17 (1,794) 156 6,012 Total changes in the statement of profit or loss and OCI (8,585) 65 (1,794) 162,642 152,328 Cash flows Premiums received 251,122 – 3,197 – 254,319 Insurance acquisition cash flows (29,987) – – – (29,987) Claims and other insurance service expenses paid (12,955) – – (159,185) (172,140) Others – – (209) – (209) Total cash flows 208,180 – 2,988 (159,185) 51,983 Net closing balance 1,540,493 999 (134,519) 18,355 1,425,328 Closing contract assets (11,708) – (614) – (12,322) Closing insurance contract liabilities 1,552,201 999 (133,905) 18,355 1,437,650 Net closing balance 1,540,493 999 (134,519) 18,355 1,425,328 * Policy loans and Other Insurance related assets that are transferred at face value to LRC. 117 116 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 31. Insurance (continued) Reconciliation of the measurement components of insurance contract balances for insurance contracts as at 31 December 2023: CSM 31 December 2023 Estimates of present value of future cash flows Risk adjustment for non- financial risk Contracts under full retro- spective approach Contracts under fair value approach Other contracts Total 1 January 2023 1,001,792 1,750 18,418 35,412 5,145 1,062,517 Changes in the statement of profit or loss and OCI Changes that relate to current service CSM recognised for services provided – – (1,540) (3,244) (723) (5,507) Change in risk adjustment for non‑financial risk for risk expired – (618) – – – (618) Experience adjustments (1,702) – – – (12,689) (14,391) (1,702) (618) (1,540) (3,244) (13,412) (20,516) Changes that relate to future service Contracts initially recognised in the year (11,302) 1,256 – – 10,091 45 Changes in estimates that adjust the CSM 16,544 2,064 (2,614) (9,720) (5,752) 522 Changes in estimates that result in losses and reversals of losses on onerous contracts (420) 39 – – – (381) 4,822 3,359 (2,614) (9,720) 4,339 186 Insurance service result 3,120 2,741 (4,154) (12,964) (9,073) (20,330) Insurance finance expenses from insurance contracts recognised in profit and loss 100,626 106 174 123 50 101,079 Investment components excluded from insurance revenue and insurance service expenses 5,153 – – – (1,052) 4,101 Effect of movements in exchange rates 64,658 111 938 2,270 1,493 69,470 Total changes in the statement of profit or loss and OCI 173,557 2,958 (3,042) (10,571) (8,582) 154,320 Cash flows 21,108 – – – 11,567 32,675 Net balance as at 31 December 2023 1,196,457 4,708 15,376 24,841 8,130 1,249,512 31. Insurance (continued) Insurance and Financial Risk Management The Company is committed to the management of risk to achieve sustainability of service to its customers, employment of its staff and profits to its shareholders and therefore, takes on controlled amounts of risk when considered appropriate. Reconciliation of the measurement components of insurance contract balances for insurance contracts as at 31 December 2024: CSM 31 December 2024 Estimates of present value of future cash flows Risk adjustment for non- financial risk Contracts under full retro- spective approach Contracts under fair value approach Other contracts Total 1 January 2024 1,196,457 4,708 15,376 24,841 8,130 1,249,512 Changes in the statement of profit or loss and OCI Changes that relate to current service CSM recognised for services provided – – (1,397) (2,600) (933) (4,930) Change in risk adjustment for non‑financial risk for risk expired – (1,222) – – – (1,222) Experience adjustments (4,932) – – – (12,882) (17,814) (4,932) (1,222) (1,397) (2,600) (13,815) (23,966) Changes that relate to future service Contracts initially recognised in the year (7,904) 1,446 – – 6,793 335 Changes in estimates that adjust the CSM 20,986 5,645 (3,325) (1,429) (6,760) 15,117 Changes in estimates that result in losses and reversals of losses on onerous contracts (14,725) (840) – – – (15,565) (1,643) 6,251 (3,325) (1,429) 33 (113) Changes that relate to past services Adjustments to liabilities for incurred claims 2,759 – – – – 2,759 Insurance service result (3,816) 5,029 (4,722) (4,029) (13,782) (21,320) Insurance finance expenses from insurance contracts recognised in profit and loss 112,781 226 183 95 94 113,379 Investment components excluded from insurance revenue and insurance service expenses 23,934 – – – (570) 23,364 Effect of movements in exchange rates 29,545 111 542 671 (2,422) 28,447 Total changes in the statement of profit or loss and OCI 162,444 5,366 (3,997) (3,263) (16,680) 143,870 Cash flows 29,149 – – – 15,119 44,268 Net balance as at 31 December 2024 1,388,050 10,074 11,379 21,578 6,569 1,437,650 11 9 11 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 31. Insurance (continued) The risk management framework is targeted at ensuring that the Company maintains sufficient capital at a level which exceeds the minimum solvency requirements prescribed by the regulators. The Company is exposed to financial as well as insurance risks. The Group’s risk management strategy is set by the Board of Directors through the following sub-committees: • BSP Life (Fiji) Limited Investment Governance Committee (IGC) (Market Risk) and • Board Audit and Compliance Committee (Operational and Other Risk). Implementation of the risk management strategy and the day-to-day management of risk is the responsibility of the Executive Management. Insurance risk The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and is unpredictable. The principal risk that the Company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random, and the actual number and amount of claims and benefits will vary from year to year from the level established using actuarial methods. The Company’s objectives in managing risks arising from the insurance business are: • To ensure risk appetite decisions are made within the context of corporate goals and governance structures • To ensure that an appropriate return on capital is made in return for accepting insurance risk • To ensure that strong internal controls embed underwriting to risk within the business • To ensure that internal and external solvency and capital requirements are met • To use reinsurance as a component of insurance risk management strategy. Terms and conditions of insurance contracts The nature of the terms of insurance contracts written is such that certain external variables can be identified on which related cash flows for claim payments depend. The table below provides an overview of the long-term insurance contracts: Type of Contract Details of Contract Terms and Conditions Nature of Compensation for Claims Key Variables that affect the timing and uncertainty of Future Cash Flows Non-participating life insurance contracts with fixed and guaranteed terms (Term Life and Disability) Benefits paid on death, ill health or maturity that are fixed and guaranteed and not at the discretion of the insurer. Premiums may be guaranteed through the life of the contract, guaranteed for a specified term or variable at the insurer’s discretion. Benefits, defined by the insurance contract, are determined by the contract, and are not directly affected by the performance of underlying assets or the performance of the contracts as whole. – Mortality – Morbidity – Discontinuance rates – Expenses – Market rates on underlying assets Life insurance contracts with discretionary participating benefits (endowment and whole of life) These policies include a clearly defined initial guaranteed sum which is payable on death. The guaranteed amount is a multiple of the amount that is increased throughout the duration of the policy by the addition of regular bonuses annually which, once added, are not removed. Benefits arising from the discretionary participation feature are based on the performance of a specified pool of contracts or a specified type of contract. – Mortality – Morbidity – Market risk – Discontinuance rates – Expenses – Market rates on underlying assets 31. Insurance (continued) An analysis of the expected recognition of the CSM remaining at the end of the reporting period in the profit or loss is provided in the following table. The analysis below considers the Insurance and Reinsurance Contract: Total CSM for insurance contracts Less than 1 year In 1 to 3 years In 4 to 5 years > 5 years Total As at 31 December 2024 4,348 10,409 5,410 19,360 39,527 As at 31 December 2023 5,345 12,945 6,908 23,149 48,347 BSP Life conducts sensitivity analysis to quantify the exposure to risk of changes in the key underlying variables such as interest rate, mortality, morbidity, and inflation. The table below illustrates how changes in key assumptions and experience would impact the reported profit, liabilities, and equity of BSP Life. For Market risks, the effect of movements in interest rates or equity values on the value of assets and liabilities is shown. For insurance risk, changes to key assumptions would have no impact on liabilities, which are calculated using Margin on Services, for which there is an offsetting reserve for future profits under non-participating and future supportable bonus for participating policies. Results from sensitivity analysis 31 December 2024 31 December 2023 Effect on liabilities Effect on liabilities All amounts are expressed in K’000 Effect on assets FCF CSM Profit/ (loss) Effect on assets FCF CSM Profit/ (loss) Market Risks Increase in Interest Rates of 1% (24,376) (30,403) 10,983 (4,956) (20,683) (25,719) 8,915 (3,879) Decrease in Interest Rates of 1% 27,598 36,195 (14,066) 5,469 23,307 28,881 (9,966) 4,392 Equity values increase by 10% 75,515 53,739 5,885 15,891 72,791 49,912 7,390 15,489 Equity values decrease by 10% (75,515) (53,755) (5,863) (15,897) (72,791) (50,121) (7,207) (15,463) Foreign currency strengthens by 10bps 30,702 21,848 2,393 6,461 22,183 15,211 2,252 4,720 Foreign currency weakens by 10bps (20,616) (14,675) (1,601) (4,340) (15,219) (10,480) (1,507) (3,232) Insurance risks Increase in expenses of 10% – 215 (173) (42) – 2,324 (2,024) (300) Improvement in lapses by 10% – 707 (588) (119) – (524) 708 (184) Worsening of lapses by 10% – (1,013) 815 198 – 497 (677) 180 Improvement in mortality of 10% – (5,323) 4,826 497 – (1,348) 1,141 207 Worsening of mortality of 10% – 4,739 (4,213) (526) – 3,242 (2,866) (376) Worsening of morbidity of 10% – (724) 639 85 – (73) 71 2 1 21 1 2 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 33. Investment in Joint Ventures Place of incorporation and operation Ownership % Name of Joint Venture Principal activity 2024 2023 Suva Central Ltd Property rental Fiji 50%* 50%* Richmond Ltd Hotel operations Fiji 50%* 50%* BSP Finance Cambodia Plc1 Asset financing Cambodia 50%* 50%* BSP Finance Laos1 Asset financing Laos 50%* 50%* The investments above are accounted for using the equity method. * Both ownership and voting power held, ** ownership, *** voting power held. 1. Assets held for sale. Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Joint Ventures Investment in Joint Ventures 303,617 270,111 29,615 26,127 (Disposal of)/New investment during the year 3,197 (39,510) – – Translation movement 3,411 14,904 357 546 Impairment loss (Note 39) (35,816) – – – Share of profit/(loss) for the year 13,623 58,112 314 2,942 Asset held for sale (Note 39) (14,544) – – – Net investment in joint venture 273,488 303,617 30,286 29,615 Summarised financial information of Joint Ventures: Total assets 655,830 734,386 95,141 94,016 Total liabilities (334,566) (432,283) (41,491) (41,001) Net assets 321,264 302,103 53,650 53,015 Share of profit/(loss) for the year 54,468 28,742 314 2,942 Group fair value alignment (40,845) 29,370 – – Share of profit in Group 13,623 58,112 314 2,942 31. Insurance (continued) Insurance and Financial Risk Management Variations in claim levels will affect reported profit and equity. The impact may be magnified if the variation leads to a change in actuarial assumptions which cannot be absorbed within the present value of planned margins for a group of related products. Insurance risk may arise through the reassessment of the incidence of claims, the trend of future claims and the effect of unforeseen diseases or epidemics. In addition, in the case of morbidity, the time to recovery may be longer than assumed. Concentrations of insurance risk arise due to the large sums assured on certain individuals. The largest exposures all relate to mortality. The largest single exposure for the Life business is K14.2m of which K13.6m is reinsured (2023: K14.0m of which K13.5m is reinsured). For BSP Life PNG, the largest single exposure is K11.2 million of which K11.1 million is reinsured (2023: K11.1 million of which K11.0 million was reinsured). Insurance risk is controlled by ensuring underwriting standards adequately identify potential risk and diversify the type and amount of insurance risks accepted, retaining the right to amend premiums on risk policies where appropriate and through the use of reinsurance and proactive claims handling. The experience of the Company’s Life Insurance business is reviewed regularly. 32. Investment in Subsidiaries Place of incorporation and operation Balance of investment Name of subsidiary Principal activity Ownership % 2024 2023 BSP Capital Limited Fund Management/ Investment Banking PNG 100% 2,448 2,448 BSP Life (Fiji) Limited Life Insurance Fiji 100% 87,599 87,599 BSP Life (PNG) Limited Life Insurance PNG 100% 25,000 25,000 BSP Convertible Notes Limited Capital Raising Fiji 100% 371 371 BSP Finance Limited Credit Institution PNG 100% 97,677 94,478 BSP Platform Pacific Limited Digital Technology PNG 100% 395 395 Bank of South Pacific Tonga Ltd Bank Tonga 100% 71,611 71,611 Bank South Pacific (Samoa) Ltd Bank Samoa 98.7% 70,712 70,713 Bank South Pacific Vanuatu Ltd Bank Vanuatu 100% 38,020 38,020 At 31 December 393,833 390,635 Represented by: At 1 January 390,635 399,361 BSP Platform Pacific Limited conversion from Joint Venture – 395 Partial conversion of debt to equity 3,198 – Additional capital/(divestment of shares) – (9,121) At 31 December 393,833 390,635 BSP Life (Fiji) Limited divested 40% of its interest in Future Farms Limited of K33.918 million, during the reporting period. The entity retained control over the investment. 1 2 3 1 2 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 36. Directors and Executive Remuneration Directors’ remuneration Directors of the company received remuneration including benefits during 2024 as detailed below: All amounts are expressed in Kina Name of Director Meetings attended/ total held Appointed/ (Resigned) Total remuneration 2024 Bank 2024 Subsidiaries 2024 Total 2023 Total Sir K.G. Constantinou, OBE 1/1 (Feb 2023) – – – 215,326 M.T. Robinson1 7/7 – – – – R.G. Bradshaw 7/7 942,946 – 942,946 692,274 S.G. Brewis-Weston 7/7 524,030 – 524,030 414,864 Dr. M. Lua’iufi 7/7 510,905 120,000 630,905 519,239 S.A Davis 7/7 537,155 – 537,155 427,364 P. Kevin 7/7 507,155 – 507,155 402,364 F.D. Bouraga 7/7 521,530 – 521,530 389,864 P.F. Taureka-Seruvatu 7/7 517,780 – 517,780 402,364 I.A. Tarutia 5/5 524,030 – 524,030 249,538 A. Sam 1/7 (Feb 2024) 127,894 127,894 427,364 S.C. Beach 5/5 Apr 2024 399,261 – 399,261 – 5,112,686 120,000 5,232,686 4,140,561 Shareholder Approved Cap 6,000,000 4,500,000 1. Managing Director/Group 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. Executive Remuneration The specified executives as at 31 December 2024 were: Mark Robinson Ronesh Dayal Peter Beswick Daniel Faunt Nuni Kulu Rohan George Richard Nicholls Vandhna Narayan Hari Rabura Maryann Lameko-Vaai Paul Black (August 2024) Mike Hallinan All amounts are expressed in K’000 Year Salary Short term incentive Value of benefits Long term incentive Leave encash- ment Final entitle- ments Total 2024 remuneration 20,078 9,174 1,444 4,816 477 – 35,989 2023 remuneration 16,226 5,405 1,247 2,564 993 – 26,435 Other 34. Fiduciary Activities The Group especially through BSP Capital Limited conducts investment fund management 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. 35. Related Party Transactions Related parties are considered to be enterprises or individuals with whom the Group is especially related because either they or the Group 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 a 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 2024, 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 2024 2023 Customer Deposits Opening balances 82,772 150,256 Net movement 81,000 (67,484) Closing balance 163,772 82,772 Interest paid 14 12 Loans and receivables from customers Opening balances 894,914 636,622 Loans issued 800,000 67,500 Interest 50,526 45,596 Charges – 12 Loan repayments (858,339) (132,117) New Director 1 834,409 Outgoing Director – (557,108) Closing balance 887,102 894,914 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 2024, staff account balances were as follows: All amounts are expressed in K’000 2024 2023 Housing loans 192,126 195,907 Other loans 63,532 65,568 255,658 261,475 Cheque accounts 14,264 10,085 Savings accounts 6,235 6,923 20,499 17,008 1 2 5 1 2 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 37. Events Occurring After Balance Sheet Date Conversion of Fiji Branch to Subsidiary As part of BSP Financial Group’s strategic initiatives to enhance operational and regulatory compliance, the Fiji branch was converted into a wholly owned subsidiary, BSP Financial Group (Fiji) Pte Limited, effective 1 January 2025. This restructuring aligns with the Group’s commitment to gaining operational efficiencies and meeting jurisdictional requirements. This is also in line with recent global corporate financial structure trends. Nature of the Transaction The conversion will involve the transfer of all assets, liabilities, and operations of the Fiji branch to the new subsidiary. The transaction will be accounted for as a reorganisation within the Group. Financial Impact The following net assets were transferred to the subsidiary. The foreign currency translation reserve at 1 January 2025 of K81.778 million attributable to the Fiji branch will be derecognised and recognised in that Statement of Income and Expenditure of the parent entity. The conversion has no material impact on the Group’s assets, liabilities, equity, and profit or loss account. Assets All amounts in K’000 Loans and advances 4,519,542 Property, plant, and equipment 38,317 Cash and cash equivalents 1,343,802 Cash reserve requirement with Central Bank 562,108 Amounts due to other banks 138,628 Other assets 124,977 Total assets 6,727,374 Deposits 5,460,003 Amounts due to other banks 230,856 Other liabilities 322,492 Equity & retained earnings 714,023 Total equity and liabilities 6,727,374 The net assets will be transferred to the subsidiary at their carrying amounts, and the investment in the subsidiary will be recognised at the same value in the parent entity’s financial statements. Consolidation in 2025 Following the conversion, BSP Financial Group (Fiji) Pte Limited will be fully consolidated into the BSP Financial Group’s financial statements. All intercompany transactions and balances between the Group and the new subsidiary will also be eliminated on consolidation. Regulatory and Operational Implications The conversion exercise involved various stakeholder engagements and required regulatory approvals were received from Reserve Bank of Fiji, Fiji Revenue and Custom Services, Fiji Competition & Consumer Commission, Investment Fiji and Government of Fiji. The subsidiary now operates as “BSP Financial Group (Fiji) Pte Limited” and complies with local statutory and regulatory requirements. 36. Directors and Executive Remuneration (continued) 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 2024 2023 Remuneration 2024 2023 Remuneration 2024 2023 K’000 No. No. K’000 No. No. K’000 No. No. 100 – 110 183 125 590 – 600 3 1 1200 – 1210 1 1 110 – 120 135 122 600 – 610 3 4 1240 – 1250 – 1 120 – 130 101 84 610 – 620 2 5 1240 – 1250 – 1 130 – 140 71 70 620 – 630 1 4 1260 – 1270 1 1 140 – 150 70 68 630 – 640 2 2 1310 – 1320 – 1 150 – 160 51 51 640 – 650 2 1 1320 – 1330 – 1 160 – 170 44 38 650 – 660 – 1 1330 – 1340 – 1 170 – 180 27 32 660 – 670 – 1 1340 – 1350 1 1 180 – 190 30 27 670 – 680 – 2 1360 – 1370 – 1 190 – 200 18 25 680 – 690 4 1 1370 – 1380 – 1 200 – 210 24 17 690 – 700 – 2 1380 – 1390 1 – 210 – 220 17 20 710 – 720 1 1 1410 – 1420 – 1 220 – 230 19 19 720 – 730 1 1 1430 – 1440 – 1 230 – 240 13 14 730 – 740 1 2 1440 – 1450 – 1 240 – 250 18 26 740 – 750 1 – 1520 – 1530 – 1 250 – 260 11 5 750 – 760 1 1 1530 – 1540 – 1 260 – 270 9 10 760 – 770 1 2 1550 – 1560 – 1 270 – 280 5 8 770 – 780 1 1 1560 – 1570 – 1 280 – 290 5 7 780 – 790 1 – 1680 – 1690 1 – 290 – 300 5 9 790 – 800 1 – 1760 – 1770 – 1 300 – 310 3 5 800 – 810 2 – 1780 – 1790 1 1 310 – 320 8 8 810 – 820 1 1 1790 – 1800 1 – 320 – 330 8 5 820 – 830 – 2 1810 – 1820 – 1 330 – 340 10 5 830 – 840 1 – 1840 – 1850 – 1 340 – 350 5 4 840 – 850 1 – 1880 – 1890 – 1 350 – 360 4 6 850 – 860 – 1 1930 – 1940 – 1 360 – 370 5 3 860 – 870 1 2 1980 – 1990 1 – 370 – 380 12 5 870 – 880 – 2 2000 – 2010 1 – 380 – 390 8 3 900 – 910 2 – 2060 – 2070 1 – 390 – 400 4 4 910 – 920 2 2 2080 – 2090 1 1 400 – 410 7 4 930 – 940 2 – 2250 – 2260 – 1 410 – 420 7 3 940 – 950 1 1 2280 – 2290 – 1 420 – 430 5 6 950 – 960 2 – 2360 – 2370 – 1 430 – 440 3 5 960 – 970 – – 2410 – 2420 2 – 440 – 450 5 6 990 – 1000 1 2 2430 – 2440 – 1 450 – 460 6 1 1000 – 1010 2 1 2480 – 2490 1 – 460 – 470 9 2 1010 – 1020 1 1 2490 – 2500 1 – 470 – 480 5 8 1020 – 1030 1 – 2500 – 2510 – 1 480 – 490 4 7 1030 – 1040 1 – 2610 – 2620 1 – 490 – 500 2 5 1040 – 1050 – 1 2750 – 2760 – 1 500 – 510 3 2 1050 – 1060 – 1 3190 – 3200 – 1 510 – 520 2 3 1060 – 1070 1 – 7120 – 7130 1 – 520 – 530 2 – 1070 – 1080 1 – 530 – 540 2 5 1090 – 1100 3 – 540 – 550 1 2 1100 – 1110 – 3 550 – 560 2 2 1120 – 1130 1 2 560 – 570 2 4 1130 – 1140 2 1 570 – 580 1 2 1140 – 1150 1 – 580 – 590 5 4 1160 – 1170 3 2 Total 1,072 984 Remuneration disclosures have been updated to reflect entitlements applicable to respective years. Short term incentives and long term incentives for executives are paid post availability of audited accounts in the subsequent year and have been aligned accordingly. Prior year disclosures were based on the period each entitlement was received. 1 2 7 1 2 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D For the Year Ended 31 December 2024 To the shareholders of BSP Financial Group Limited I N D E P E N D E N T A U D I T O R ’ S R E P O R T 38. Amalgamation of BSP Finance PNG Limited The Registrar of Companies approved the amalgamation of BSP Finance PNG Limited with BSP Financial Group Limited. The effective date of amalgamation was 31 December 2024. BSP Finance PNG Limited was amalgamated into the Company using the short-form amalgamation process under section 235 of the Companies Act 1997. The name of the amalgamated company is BSP Financial Group Limited. Under the amalgamation, the Company took control of all the assets of BSP Finance PNG Limited and assumed the responsibility for their liabilities. The amalgamation was accounted in the 2024 financial year based on predecessor accounting with book value accounting used for the purposes of the transaction. The amalgamation had no impact on the Group’s assets, liabilities, equity, and profit or loss account, as the amalgamated entity has been fully controlled by the Group and consolidated prior to the amalgamation and after the amalgamation. This strategic decision was made to enhance operational efficiency and leverage synergies between the two entities and to strengthen the competitive position of the combined entity in the market. Further, amalgamation had no impact on the Group’s cash flows. The effect of amalgamation of BSP Finance PNG Limited at the date of amalgamation is summarised below: K’000 Assets of amalgamated entity 134,479 Liabilities of amalgamated entity (90,011) Total net assets acquired on amalgamation 44,468 Less: investment in amalgamated entity – Amount recognised directly within common control reserve in equity 44,468 Total cash held by amalgamated entity on amalgamation 6,095 Predecessor accounting Amalgamations of entities under common control are accounted for using the predecessor values method. Under this method, the financial statements of the combined entity are presented as if PNG Bank and BSP Finance PNG Limited had been combined from the date when the combining entities were amalgamated. The assets and liabilities of the amalgamated entities are stated at the predecessor carrying amounts. Fair value measurement is not required, and no new goodwill arises in predecessor accounting. Any difference between the consideration given and the aggregate book value of the assets and liabilities of the acquired entity at the date of the transaction is included within common control reserve in equity. 39. Asset held for sale At 31 December 2024, the Company has classified its investment in the joint ventures (BSP Finance Cambodia & BSP Finance Laos) as held for sale. The investment is expected to be sold in the next financial year. The carrying amount of the investment has been measured at the lower of its carrying amount and fair value less costs to sell, resulting in a reclassification to non-current assets held for sale with a carrying amount of K14.544 million. The impairment taken up in this period is K35.816 million. 40. Remuneration of Auditor Consolidated Bank All amounts are expressed in K’000 2024 2023 2024 2023 Financial statement audits 5,427 6,925 3,831 4,611 Other services 583 553 541 517 6,010 7,478 4,372 5,128 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. PricewaterhouseCoopers, PwC Haus, Level 6, Harbour City, Konedobu, PO Box 484 Port Moresby, Papua New Guinea T: +675 321 1500 / +675 305 3100, www.pwc.com.pg Independent auditor’s report To the shareholders of BSP Financial Group Limited Report on the audit of the financial statements of the Bank and the Group Our opinion We have audited the financial statements of BSP Financial Group Limited (the Bank), which comprise the statements of financial position as at 31 December 2024, and the statements of comprehensive income, statements of changes in shareholders’ equity and statements of cash flows for the year then ended, including material accounting policy information. The Group comprises the Bank and the entities it controlled at 31 December 2024 or from time to time during the financial year. In our opinion the accompanying financial statements: ● comply with IFRS Accounting Standards as issued by the International Accounting Standards Board (IASB) 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 2024, 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 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) that are relevant to audits of the financial statements of public interest entities in Papua New Guinea, 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 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 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. 1 2 9 1 2 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S To the shareholders of BSP Financial Group Limited I N D E P E N D E N T A U D I T O R ’ S R E P O R T C O N T I N U E D Key audit matter How our audit addressed the key matter Loan loss provisioning - Refer to Note 15 of the financial statements for a description of the accounting policies and to Note 22 for an analysis of credit risk and asset quality 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. IFRS 9 Financial Instruments (IFRS 9) is a complex accounting standard which has required considerable judgement and interpretation in its application. Areas of judgement included: ● The determination of the impairment in applying IFRS 9, which is reflected in the allowance for losses on loans, advances and other receivables ● 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 and forward looking macroeconomic factors. To assess the Group’s loan loss provisioning, we performed the following audit procedures on a sample basis, amongst others: ● Obtained an understanding of the processes and controls relevant to the credit origination and credit monitoring processes ● Assessment of the reasonableness of the key outputs of the expected credit loss model, as well as key judgements and assumptions used by management ● Testing the key fields identified to have an impact on the expected credit loss provision by agreeing these back to source documentation ● Examining the model methodology for consistency and appropriateness for loans and advances in Stage 1 and Stage 2. This included evaluation of the appropriateness of the estimates made on the Probability of Default, Loss Given Default and Exposure at Default ● For Stage 3 loans and advances, procedures over the credit watch list and delinquencies, and evaluation of assumptions made in the valuation of collateral and recovery cash flows. IT systems and controls We focused on this area because the Group is heavily dependent on complex IT systems for the capture, processing, storage and extraction of significant volumes of transactions. There are some areas of the audit where we seek to place reliance on system functionality including certain automated controls, system calculations and reports. Our reliance on these is dependent on the Group’s IT General Control (ITGC) environment, in particular, user access maintenance and changes to IT systems being authorised and made in an appropriate manner. Where relevant to our planned audit approach, we assessed the design and tested the operating effectiveness of the key ITGCs which support the continued integrity of the in-scope IT systems. Our procedures over ITGCs focused on user access and change management and we also carried out tests, on a sample basis, of system functionality that was key to our audit approach. Where we identified design or operating effectiveness matters relating to ITGCs and system functionality relevant to our audit, we performed alternative or additional audit procedures. 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. Materiality Audit scope Key audit matters ● For the purpose of our audit of the Group we used overall group materiality 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. ● We selected 5% based on our professional judgement noting that it is also within the range of commonly acceptable thresholds. ● We (PwC Papua New Guinea) conducted the audit over all of the Group’s operations in Papua New Guinea (PNG) 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, Solomon Islands, Samoa, Tonga, Cook Islands, and Vanuatu the audit work was performed by other non PwC network firms operating under our instructions. ● Our audit focused on where the directors made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. ● Amongst other relevant topics, we communicated the following key audit matters to the Board Audit and Compliance 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 year. 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. 1 31 1 3 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S To the shareholders of BSP Financial Group Limited I N D E P E N D E N T A U D I T O R ’ S R E P O R T C O N T I N U E D ● 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 financial statements. 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 2024: ● 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 Grasso Partner Port Moresby Registered under the Accountants Act 1996 19 February 2025 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 the matter 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 IFRS Accounting Standards as issued by the IASB 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 that give a true and fair view and are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the ability of the Group 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 the Group 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 International Standards on Auditing, 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. ● 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. 1 3 3 1 3 2 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | F I N A N C I A L S TAT E M E N T S S H A R E H O L D E R I N F O R M A T I O N Rights Attaching to Ordinary Shares The rights attaching to shares are set out in the BSP Financial Group Limited’s Constitution and in certain circumstances, are regulated by the Companies Act 1997, the PNGX Listing Rules and ASX Listing Rules (collectively Listing Rules), and general law. There is only one class of share. All shares have equal rights. Other rights attached to ordinary shares include: 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. Issues of further shares 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 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 Listing Rules, ordinary shares are freely transferable. The shares may be transferred by a proper transfer effected in accordance with the PNGX Business Rules, ASX Settlement Operating Rules, or by any other method of transferring or dealing with shares introduced by PNGX and ASX, 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, PNGX or ASX 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 PNGX Business Rules, or ASX Settlement Operating Rules), where permitted to do so under the 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 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 Listing Rules, by the PNGX Business Rules, or by the ASX Settlement Operating Rules. Partly paid shares The Directors may, subject to compliance with BSP’s constitution, the Companies Act and the 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. 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 five years are disclosed in the Financial Performance section on page 11 of 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 BSP’s Constitution states that the minimum number of directors is three and the maximum is ten. 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 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 Buybacks Subject to the provisions of the Companies Act and the 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. 1 3 5 1 3 4 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | S H A R E H O L D E R I N F O R M AT I O N S H A R E H O L D E R I N F O R M A T I O N C O N T I N U E D Unmarketable Parcels As at 31 December 2024, the BSP Share Price was K19.90 on the PNGX and A$6.66 on the ASX. There were 208 shareholders (less than 0.01% of issued securities) who held less than a marketable parcel of BSP shares, being equal to K1,000, or less in market value. Escrow Shares As of 31 December 2024, there were 89,425,061 BSP shares held in escrow. Shareholder Name Security Type Escrow Shares as at 31 Dec 24 Effective Date Kumul Consolidated Holdings BSPESC1 Fully Paid Ordinary Shares 22,774,327 6/4/2018 Kumul Consolidated Holdings BSPESC2 Fully Paid Ordinary Shares 20,496,894 6/4/2018 Petroleum Resources Kutubu Limited BSPESC3 Fully Paid Ordinary Shares 46,153,840 18/11/2016 Total Escrow Shares 89,425,061 The partial release of shares from escrow in 2024 included: • 17,766,214 shares released from BSPESC1; and • 23,274,162 shares released from BSPESC2. Directors’ Interest in BSP Shares As at 31 December 2024, the Directors who own shares in the Company are: Director Number of Shares Owned Percentage of Issued Capital Mark Robinson 15,925 0.00% Faamausili Dr. Matagialofi Lua’iufi 14,117 0.00% Robert Bradshaw 4,350 0.00% Ian Tarutia 3,044 0.00% Patricia Taureka-Seruvatu 1,000 0.00% Priscilla Kevin 300 0.00% Top 20 Shareholders As at 31 December 2024, the twenty largest fully paid shareholders of the Company were: Rank Shareholder Total Holding % 1 Kumul Consolidated Holdings 84,811,597 18.15% 2 The Fiji National Provident Fund 53,299,897 11.41% 3 Nambawan Super Limited 47,702,160 10.21% 4 Petroleum Resources Kutubu Limited 46,153,840 9.88% 5 National Superannuation Fund Limited 45,318,417 9.70% 6 Credit Corporation (PNG) Limited 31,294,081 6.70% 7 Motor Vehicles Insurance Limited 31,243,736 6.69% 8 The Catholic Bishops Conference Inc 12,620,000 2.70% 9 Comrade Trustee Services Limited 12,456,052 2.67% 10 Capital Nominees Limited 5,862,153 1.25% 11 Samoa National Provident Fund 4,451,940 0.95% 12 Unit Trust Of Samoa 3,969,371 0.85% 13 Lamin Trust Fund 3,653,700 0.78% 14 Mineral Resources Ok Tedi No. 2 Limited 3,496,449 0.75% 15 Picube Holdings Limited 2,987,184 0.64% 16 Sky Finance Limited 2,753,090 0.59% 17 Mineral Resources Star Mountains Ltd 2,628,373 0.56% 18 Solomon Islands National Provident Fund 2,500,001 0.54% 19 HSBC Custody Nominees (Australia) Limited 2,429,710 0.52% 20 Gas Resources Gigira Limited 2,392,853 0.51% Other Shareholders 65,195,375 13.95% Total 467,219,979 Distribution of Shareholding As at 31 December 2024, the Company had 6,504 shareholders. The distribution of shareholding is as follows: Range Number of Security Holders Percentage of Security Holders Number of Securities Percentage of Issued Capital 1 to 1,000 5,182 79.67% 1,389,436 0.30% 1,001 to 5,000 789 12.13% 1,731,178 0.37% 5,001 to 10,000 143 2.20% 1,062,833 0.23% 10,001 to 100,000 255 3.92% 9,382,316 2.01% 100,001 and over 135 2.08% 453,654,216 97.10% Total 6,504 467,219,979 1 3 7 1 3 6 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | S H A R E H O L D E R I N F O R M AT I O N S H A R E H O L D E R I N F O R M A T I O N C O N T I N U E D Director Designation Name of Organisation Date of Interest Patricia Taureka- Seruvatu Non-Executive Director BSP Financial Group Limited April 2022 Director/Shareholder Naita Designs & Management Limited February 2023 Member PNG Law Society PNG Women Lawyers’ Association Papua New Guinea Institute of Directors Australian Institute of Company Directors (AICD) Since 1988 November 2017 Since 2023 Since 2023 Frank Bouraga Non-Executive Director BSP Financial Group Limited 30 December 2020 Director BSP Capital Funds Administration Limited PNG Cancer Foundation (Treasurer) Tactical Solutions International Limited SP PNG Hunters 19 May 2022 5 July 2017 1 August 2021 Since 2024 Shareholder (50%) Inside Out Limited Star Management Services 19 April 2010 1 September 2016 Shareholder (2%) Mobo Group of Companies 4 November 2014 Principal SBC Solutions – Registered Public Accountants, Tax Agents & Auditors 1 January 2004 Member Accountants Registration Board Australian Institute of Company Directors (AICD) 1 January 2004 18 September 2019 Stephen Beach Non-Executive Director BSP Financial Group Limited February 2024 Alternate Board Member Accountants Registration Board Since 2019 Shareholder (49%) BAA Consulting Ltd. July 2023 Principal BAA Consulting Australia Pty Ltd November 2023 Member Certified Practicing Accountants of PNG Since July 1992 Priscilla Kevin Non-Executive Director BSP Financial Group Limited April 2020 Board Member/Vice President International & Co-Founder PNG Digital ICT Cluster Inc. March 2018 Director/ Majority Shareholder IN4NET January 2013 Board/Council Member Institute of National Affairs March 2018 Board Member PNG University of Technology Industrial Advisory Board June 2015 Committee Member Centre for Excellence in Financial Inclusion (CEFI) Digital Financial Services Working Group September 2018 Ian Tarutia Non-Executive Director BSP Financial Group Limited April 2023 Chairman Nasfund Contributors Savings & Loans Society (NCSL) CloudApp Laboratories Limited National Broadcasting Corporation October 2023 January 2016 July 2023 President PNG Chamber of Commerce & Industry December 2020 Director Kumul Consolidated Holdings Limited Immigration & Citizenship Advisory Board Panamax Pacific (PNG) Limited December 2020 January 2021 November 2024 Life Member Association of Superannuation Funds of PNG January 2019 Directors’ Interests Register Directors’ interests as at 31 December 2024 were: Director Designation Name of Organisation Date of Interest Robert Bradshaw Non-Executive Director/ Chairman BSP Financial Group Limited 13 July 2016 Director/Shareholder Koitaki CC Limited Wahgi Arabicas Limited Since 2014 Since 2018 Shareholder Songkain Limited Owner Bradshaw Lawyers Waghi Valley Country Club The Kofi Club Koitaki Country Club Since 2005 Since 2016 Since 2020 Since 2012 Member Papua New Guinea Law Society Australian Institute of Company Directors Papua New Guinea Institute of Directors Since 1995 Since 2016 Since 2016 Mark T. Robinson Managing Director/ GCEO BSP Financial Group Limited March 2023 Director BSP Life Fiji Limited BSP Finance Fiji Pte Limited Bank South Pacific (Samoa) Limited Rangiora Capital Management Ltd Invicta Capital Partners Ltd March 2023 March 2023 March 2023 Since 2007 Since 2007 Advisory Board Member Activegraf Inc. Since 2020 Member Army & Navy Club University Club Oriental Club Christchurch Club Institute of Directors Since 2021 Since 1995 Since 2014 Since 2020 Since 2021 Symon Brewis-Weston Non-Executive Director BSP Financial Group Limited April 2021 Non‑Executive Director/ Shareholder Solvar Limited November 2018 Faamausili Dr. Matagialofi Lua’iufi Non-Executive Director BSP Financial Group Limited December 2016 Principal Director Paradise Consulting October 2008 Director BSP Finance Limited Bank of South Pacific (Samoa) Limited Export Authority of Samoa November 2020 April 2021 April 2024 Member Australian Institute of Company Directors (AICD) PNG Institute of Directors Samoa Human Resource Institute Samoa Institute of Directors October 2018 August 2019 December 2018 2006, 2012 to date Stuart Davis Non-Executive Director BSP Financial Group Limited PayPal Australia Ltd August 2017 July 2016 Director Appen Limited April 2022 Member NextDC Ltd September 2013 1 3 9 1 3 8 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | S H A R E H O L D E R I N F O R M AT I O N L I S T I N G A N D R E G I S T R Y I N F O R M A T I O N Registered Office BSP Waigani Head Office Section 34, Allotment 6 & 7 Klinki Street, Waigani Drive Port Moresby, NCD Papua New Guinea PO Box 78 Port Moresby, NCD Papua New Guinea Telephone +675 320 1212 Website www.bsp.com.pg PNG Exchange for BSP Shares PNGX Markets Limited Office 2, Level 1, Monian Tower Douglas Street Port Moresby, NCD Papua New Guinea PO Box 1531 Port Moresby, NCD Papua New Guinea Telephone +675 320 1980 Website www.pngx.com.pg PNG Share Registry MUFG Corporate Markets Level 4, Cuthbertson House Cuthbertson Street Port Moresby, NCD Papua New Guinea PO Box 1265 Port Moresby, NCD Papua New Guinea Telephone +675 321 6377 Website www.mpms.mufg.com Australian Registered Office Ashurst South Tower Level 16, 80 Collins Street Melbourne, Victoria 3000 Australia Telephone +61 3 9679 3000 Australian Exchange for BSP Shares ASX Limited Exchange Centre 20 Bridge Street Sydney, NSW 2000 Australia Telephone +61 2 8298 8260 (overseas) Australian Share Registry MUFG Corporate Markets Level 12 680 George Street Sydney, NSW 2000 Australia Telephone +61 1300 554 474 Exchange & Registry for BSP Convertible Notes South Pacific Stock Exchange & Central Share Registry Shop 1 & 11, Sabrina Building Victoria Parade, Suva Fiji GPO Box 11689 Suva, Fiji Telephone +679 330 4130 1 4 0 | B S P F I N A N C I A L G R O U P L I M I T E D A N N U A L R E P O R T 2 0 2 4 | S H A R E H O L D E R I N F O R M AT I O N www.bsp.com.pg The South Pacific is our home