Papua New Guinea’s credit finance industry has had ‘a challenging year’, according to Peter Burland, at one of the country’s leading finance companies, Credit Corporation Finance Ltd. Despite that, the company has expansion plans, he tells Business Advantage PNG.

Credit Corporation’s Peter Burland

Since the completion of the construction of the PNG LNG plant, demand for loans in many sectors has decreased quite significantly, says Peter Burland, Credit Corporation Finance (CCF) Business Development Manager.

‘We are now seeing that some companies in certain industries that didn’t position themselves in advance for what was obviously going to happen (i.e. the end of the construction phase) are now finding it very tough to survive.

‘Debt recovery action, repossessions and levels of loan delinquency have increased.

‘Deposit rates, including our own, are in an upward trend, and our view is that there may well be a tightening of liquidity.’

‘2014 has been a tough year and we’re not expecting too much growth on the loan book.

‘We’re looking to maintaining the status quo and reassess our position and strategies moving forward, however, we remain optimistic in PNG’s future and our role in that future.’

Competing with banks

Despite a challenging year, CCF opened a new branch in Mount Hagen in mid-2014.

In recent years, CCF has broadened its suite of loan products from the traditional credit lines of chattel mortgages and finance leases, to providing a commercial variable rate loan and a revolving line of credit.

‘Our advantage is that the client finds that commercial banks in PNG can be very slow to react to their clients request for financial accommodation.’

‘We have done this in reaction to customer demand who wanted options on similar products normally associated with the commercial banks.

‘Generally speaking, we, the non-banking financial sector, can’t match the banks in terms of interest rates. The commercial banks are in a position to offer far lower interest rates on genuinely good business opportunities.

Construction loan purposes include heavy equipment

‘Our advantage is that the client finds that commercial banks in PNG can be very slow to react to their clients request for financial accommodation. Another common complaint is the onerous list of requirements and conditions often required by the commercial banks.

‘We can realistically have a decision for the average application within 24-48 hours. That is a great attraction to a business client and why the client is often prepared to pay a slightly higher interest rate.’

Who borrows

Burland says CCF handles loan requests from the single man/woman for private motor vehicles, through to major civil contractors, who need to acquire a fleet of plant and equipment or specialised machinery, commercial shipping, commercial developments, transport & freight etc.

‘We need to find some way of sharing the risk with someone like the ADB and leverage off of their expertise in developing specific products and procedures for the SME sector.’

Working capital finance is available for commercial entities via their Revolving Line of Credit and commercial term loans via the company’s Commercial Variable Rate loan.

Interest rates

While the interest rates on smaller, higher risk loans may seem high, Burland does not believe interest rates in general will fall anytime soon.

‘The opposite in fact,’ he says. ’We are seeing rates on longer term Treasury Bills on the increase. Rates are always subject to change, and are updated on our website. Deposit rates, including our own, are in an upward trend, and our view is that there may well be a tightening of liquidity.’ (Kina Funds Management reports 364-day T-bills were worth 7.41% on 25 November, a 52-week high).

SME support

Among Burland’s future expansion plans is to provide credit for small and medium size enterprises (SME), competing with micro finance companies, in line with the government’s plan to create 500,000 SMEs over the next 20 years.

CCF has been had an initial discussion with the Asian Development Bank (ADB) as to risk sharing on the provision loans to SMEs.

‘We need to find some way of sharing the risk with someone like the ADB and leverage off of their expertise in developing specific products and procedures for the SME sector.’

CCF is also looking to move into the foreign exchange market.

It has applied for a Foreign Currency Dealing Licence from the Bank of Papua New Guinea to add to the existing product suite and thereby better service current and potential customers & clients.