While it is adapting to increased competition and quieter market conditions at home, PNG’s largest finance company, Credit Corporation, is not standing still. Chief Executive Tor Bowen tells Business Advantage PNG that the company is set to open its first South East Asian operation, in neighbouring Timor Leste.

Credit Corporation’s Tor Bowen

Bowen says that the company’s Pacific business is holding up well and the company is taking steps to maintain profits at home.

In PNG, the strategic emphasis is on maintaining existing revenue lines and leveraging the brand.

‘My main focus is on developing the relationships that we have with our existing customers: the dealer network, professional bodies, anywhere where we can generate additional business,’ he says.

‘The market grew substantially during the LNG project, but since then it has waned.’

‘East Timor is a young country with a population of around one million and there are no finance companies there. We will be the first.’

At the same time, competition has become more intense, but Bowen believes Credit Corp company has an advantage.

‘We are the best known finance company in PNG. We have the best network, we are a public company. We are a household name. When people think of finance, many of them will think of Credit Corp first.’

The Pacific

The Port Moresby Stock Exchange-listed company has operations in PNG, Fiji, Solomon Islands and Vanuatu. Bowen says the results from Fiji and Vanuatu, both tourism-based economies, are ‘currently much better’ than PNG and the Solomons, which are more resource-based economies.

‘Credit Corp has K1.2 billion in assets with interests spanning large-scale property development to investment.’

Credit Corp is in the process of establishing itself in Timor Leste.

‘Basically, we had run out of countries in the South Pacific that had the critical mass required for a finance company,’ he explains.

‘You really need a population of at least one million people to justify the existence of a finance company. So, the logical step is to start looking into Asia. East Timor is a young country with a population of around one million and there are no finance companies there. We will be the first.’

Banks

Credit Corp has K1.2 billion in assets, with interests ranging from large-scale property development to investment. According to the company’s annual report, the aim is diversification in order to provide a ‘natural buffer against cyclical business downturns’.

Bowen says the company has a different positioning to the bank, with which it sometimes competes.

‘I have always said that with finance you need to be nimble and quick. Banks and finance companies are totally different institutions, really. We both lend money but we lend it in different ways.

‘It is not unusual for me to make a decision on K2–3 million in the space of a couple of hours.’

‘Banks tend to look at security, they look at a lot of ratio analysis. Whereas finance companies tend to visit the customers, look at their operations, look at how well managed the business is, what the vision is.

‘After quite a few years in the industry, you tend to get a feel for whether it passes what I call the smell test. If it does, we can make decisions very quickly. It is not unusual for me to make a decision on K2–3 million in the space of a couple of hours. Whereas a bank would take a few weeks to get that far. That certainly gives us an advantage.’

Cost of funds

Bowen says finance companies also have a different cost of funds, or funding base, to banks.

‘Banks enjoy a lot of free money; the money that mums and dads have in their savings and cheque accounts.

‘The slowing economy has meant more people have difficulty making payments.’

‘We are a finance company; a licensed financial institution. Which means we can take deposits from the public.

‘People can invest money in Credit Corp and we will, depending on the term and the amount, pay them an interest rate on it that is a higher interest rate than the banks will pay.

‘So, our cost of funds is higher and it follows that our lending rates are higher as well.’

Dealing with a slowing economy

Credit Corp’s Tor Bowen says the slowing economy has meant more people have difficulty making payments on their loans. He says that has meant the company has had to focus more on its collections.

‘I have just reshuffled the way we do things. We now have a dedicated collections manager and he has a dedicated collections officer working with him.

‘One of my goals at the moment is to reduce the arrears. We are being successful with that but we are looking forward to the economy improving.’

Cost containment is also crucial, says Bowen. ‘Our shareholders expect us to keep paying dividends, which means that we have to keep making profits. And part of making profits means keeping your expenses down.

‘At the same time we have to be careful to not cut costs to the point where it reduces your ability to provide good business and operate a good company.’