There is broad agreement that Papua New Guinea needs more competition in its banking sector, and several finance companies have flagged their desire to acquire banking licences. What happens next, however, is likely to depend on government action.

Bank of Papua New Guinea building in Port Moresby. Credit: BAI

Consolidation has been a key theme within PNG’s banking sector in recent years. Of the four licensed banks, Australia’s ANZ sold its retail division to local Kina Bank in 2019, retaining its institutional business, while Westpac PNG attempted to sell its PNG assets to Kina Bank in 2021 – a move ruled out by PNG’s Independent Consumer and Competition Commission (ICCC).

While the ICCC’s decision was based on the move being anti-competitive, its decision left PNG’s largest bank, BSP Financial Group, as the dominant player in the market.

However, several smaller financial institutions are now showing interest in becoming banks.

Likely candidates

In early 2023, the Bank of Papua New Guinea, PNG’s central bank, granted Credit Corporation PNG an approval in principle for a banking licence for 12 months.

CEO Danny Robinson says being able to convert its existing loan customers to full banking customers with a superior customer experience will drive greater competition. With 75 per cent of the population currently unbanked, he tells Business Advantage PNG, more banking licences have the potential to grow PNG’s banking sector, provided it is through digital delivery.

Robinson expects to increase Credit Corporation’s share-of-wallet by targeting the full banking needs of high-value customers and within five years expects to capture at least 5 per cent of PNG’s banking market.

‘One of the challenges in PNG banking is there’s still significant usage of cash and cheques.’

Meanwhile, Teachers Savings and Loan Society is also closer to becoming a fully-fledged bank, after receiving its provisional licence in 2022.

Timing is right

The Nasfund Contributors Savings and Loans Society, which has over 140,000 members, is another institution currently looking to become a bank.

‘I think the economy and the size of PNG is right for other banking players to enter the market,’ says Ian Tarutia, who recently stepped down as CEO of superannuation fund Nasfund after 15 years. ‘We need more banks because, without a shadow of doubt, competition is good.’

Brett Hooker, Chief Executive at Westpac PNG, agrees there is room for more players, noting that Fiji has seven commercial banks despite its much smaller population.

‘One of the challenges is to develop a lending framework that works in PNG, where it’s very hard to have the assets needed as collateral against loans,’ he observes.

Hooker also flags rural electrification and further rollout of reliable telecommunications as roadblocks to greater competition within PNG’s banking sector.

‘One of the challenges in PNG banking is there’s still significant usage of cash and cheques.’

Lending experience

Given that they already have a proven lending model, PNG’s existing finance companies appear to have an advantage.

People’s Microbank Limited, a subsidiary of the government-owned National Development Bank (which has a focus on rural and SME lending), is another candidate for a banking licence. The long-term vision, according to State Enterprises Minister William Duma, is to privatise 51 per cent of the microbank after it is issued with a licence to create a new entity: the National Banking Corporation of PNG.

Meanwhile, Aho Baliki, CEO of Heduru Moni Ltd (which trades as Moni Plus), tells Business Advantage PNG the company is currently reviewing whether it will proceed with its planned initial public offering on the PNGX in 2024 under its existing structure, or whether it will move to apply for a commercial banking licence.

Discouraging tax hit

Government policy could affect the outcomes of these plans, however. In the 2023 National Budget, the tax on bank profits increased to 45 per cent from 30 per cent, following the introduction of a similar tax solely on BSP the previous year.

It’s unclear yet if this decision will quash interest. However, in response, Kina Bank CEO Greg Pawson announced plans to cancel ongoing expansion of its branches nationwide. He believes the tax hike will be detrimental to competition.

A version of this story was first published in the 2023 edition of Business Advantage Papua New Guinea, PNG’s premier business magazine. Read the emag here.