The way to improve lending to Papua New Guinea business, especially small business, is to encourage more saving, especially by the country’s mostly unbanked population. That is the message from three of the country’s top bankers.

Moses Liu, Managing Director of PNG’s National Development Bank (NDB), told Business Advantage Boardroom, a new business program that aired on EMTV last week, that the first step in improving business lending in PNG is to increase the proportion of the population that is banking and saving.

National Development Bank’s Moses Liu Source: EMTV

‘We do have two million plus unbanked people still in PNG, particularly in the rural areas,’ he says. ‘There is a growing middle class with appetite for more credit and more services.’

Liu adds that there is scope there is scope ‘for one or two more players to come in and basically provide the credit that is required at this point in time.’

Equity and transparency

Robin Fleming, Chief Executive Officer of Bank South Pacific, says would-be business entrepreneurs need to establish a record of bank saving for two reasons.

Bank South Pacific’s Robin Fleming. Source: EMTV

One is to have some equity to put behind the business, rather than relying solely on debt. The other is to have a transaction record to provide the lending bank with vital information.

‘The small-to-medium market is always difficult,’ says Fleming.

‘While people say “We have challenges in terms of being able to access finance” any business which is solely dependent on debt capital is going to struggle to repay its loans and be able to provide a return to the owner-operator.

‘It is of limited benefit to a bank to have your cash sitting somewhere else where we are not able to validate, verify and confirm what your daily takings are.’

‘We all know the statistics: 70 per cent of businesses fail within the first 12 to 18 months.’

Fleming says the bank is engaging in financial training to improve the levels of inclusion. But he stresses the importance of establishing a bank record.

‘It is of limited benefit to a bank to have your cash sitting somewhere else where we are not able to validate, verify and confirm what your daily takings are. You have got to be in the formal banking sector to be able to contribute to tax and GST and the like. Get your trading record established.’

Cash flows

Fleming says banks need to have an understanding of cash flows. He says expanding lending to small and medium business is a priority for his bank.

‘Our Smart Business portfolio has increased from zero to almost 100 million kina over the last two and a half years. Which has got many loans particularly in the regional and rural areas.

‘There is excess liquidity in Papua New Guinea; the money is there.’

‘It certainly is a market which we feel has to be developed. If you are just reliant on corporates and medium-sized corporates, then you are foregoing the SMEs, which are the potential medium and larger corporates of the future.’

Liquidity

The Bank of Papua New Guinea’s Loi Bakani Source: EMTV

Loi Bakani, Governor of the Bank of Papua New Guinea, says at the aggregate level the money is available for more lending. The problems are a lack of financial literacy and a low level of involvement in banking.

‘There is excess liquidity in Papua New Guinea; the money is there.

‘So we are, together with the financial institutions, trying to encourage individuals, businesses, children, women to continue to save for the future.

‘Liu says demand for SME loans has grown on average by 20 per cent over the last three to five years.’

‘The uptake of children’s account opening is very high. The banks are offering them with no charges and fees, which encourages parents to open an account until the child goes over 18 years or 20 years, then they can have access to the account.’

Growth

Liu says demand for SME loans from the NDB has grown on average by 20 per cent over the last three to five years. ‘The uptake is quite phenomenal,’ he says.

‘They need to start saving now to show some credibility and savings history. That is where credit growth is going to come from for our local people.’

Liu attributes the growth partly to ‘the financial literacy agenda being pushed by the reserve bank and also the other financial institutions’.

‘Basically, people in Papua New Guinea come from a subsistence background where saving for tomorrow is not on the agenda. So we are doing that through the micro bank.

‘They need to start saving now to show some credibility and savings history. That is where credit growth is going to come from for our local people.

‘We have seen a huge uptake in our savings accounts over the last three years. It has just gone up to 70,000 customers and it is growing every month. So, the demand for banking products is there.

‘Through the programs we are running and through the financial inclusion agenda obviously the message is going out and people are becoming more interested.’