BSP Annual Report 2011 2011 annual report Bank of South Pacific Limited Bank of South Pacific 2011 annual report www.bsp.com.pg www.bsp.com.pg One Bank,Bank of South One Pacific Limited People. One Bank,Bank of South One Pacific Limited People. 2011 annual report Bank of South Pacific Limited Chairman’s Report .......................................................................................................................... 4 A Brief History of Bank South Pacific .............................................................................................. 8 Board of Directors .......................................................................................................................... 10 Group Chief Executive Officer’s Report ........................................................................................... 12 2011 Strategic Business Unit Review.............................................................................................. 18 Corporate Governance Principles .................................................................................................... 32 Historical Summary 2011 ................................................................................................................ 45 Overseas Branches and Subsidiaries .............................................................................................. 46 Directors’ Report and Financial Statements .................................................................................... 52 ➢ Directors’ Report ........................................................................................................... 52 ➢ Statement by the Directors ............................................................................................ 54 ➢ Statement of Comprehensive Income ........................................................................... 56 ➢ Statement of Financial Position ...................................................................................... 57 ➢ Statement of Changes in Shareholders’ Equity .............................................................. 58 ➢ Statement of Cash Flow ................................................................................................ 59 ➢ Accounting Policies ....................................................................................................... 60 ➢ Financial Risk Management ........................................................................................... 69 ➢ Notes to the Financial Statements ................................................................................. 80 Independent Audit Report ...............................................................................................................109 Shareholder Information ..................................................................................................................110 Branch Network .............................................................................................................................115 The Vision Corporate Responsibility and Marketing..........................................................................................119 To be the leading bank in the South Pacific BSP Annual Report 2011 1 BSP Bank Locations Kar Kar Island Kerevat Tambul Banz Kerowagi Minj Daulo Mutzing Henganofi Lufa CENTRAL PROVINCE Vision City Namaka Samabula BSP - Fiji BSP - Solomon Island BSP - Niue BSP Bank branches The key features of BSP’s strategy: BSP Rural branches • A focus on sales and services • High performing teams 2 BSP Annual Report 2011 BSP Annual Report 2011 3 • Operational excellence • Profitable growth Chairman’s Report Chairman’s Report • Continued commitment to community-oriented activities tellingly, as political uncertainty in the country reached Against this background, some of the Bank’s achievements resulting in 70 local community projects delivered by critical constitutional proportions. Large resource and Chairman’s Report over the year are worthy of note: bank staff in PNG, Fiji and the Solomon Islands, related infrastructure projects, and high global commodity worth in excess of K1.250 million. prices, continue to underwrite the economy’s strong, • After tax net profit of K356 million, an increase of stable growth. 26% on the after tax net profit of K283 million reported As mentioned in the highlights section, BSP’s capital in 2010; base remains in the “well capitalised” status as defined Key economic data in 2011 included:- by the home regulator, the Bank of Papua New Guinea, • Total assets of K11.7 billion, up K1.7 billion from even though group assets have grown 16.5% or • GDP growth estimate of 8.7%; 2010 levels; K1,654 million since last year. Group Capital adequacy is 24.2%, an increase from the 23.6% level as at year- • Inflation of 6.9%; • Dividend payments totalling K224 million were made end 2010, reflecting the strength in the structure of to shareholders comprising K149 million final dividend BSP’s balance sheet and the capacity for growth. • Bank of PNG monetary policy aimed at containing for 2010 (at 3.13 toea per share) and K73.7 million anticipated inflationary effects of economic growth: interim dividend for 2011 at 15.4 toea per share; BSP continues at the forefront of the development of Kina Facility Rate adjusted upwards from 7% to electronic banking facilities in the Pacific region. BSP’s 7.75% during 2011; ➢ • Regulatory capital ratios maintained at levels complying SMS subscribers continue to grow in PNG and in Fiji. with the regulator’s definition of “well capitalised”; BSP’s combined fleet of ATMs and EFTPoS machines • Net appreciation of the Kina against the US dollar in PNG, Fiji and the Solomon Islands is now indisputably (24%) and the Australian dollar (19%) during 2011; • Return on equity of 28.7%, whilst maintaining the largest among banks operating in those countries. ➢ investments in the company modernisation program, • Foreign reserves increased to US$4,337m (K9,267m) with key projects being delivered in the areas of Accompanied by modern communications technology, at the end of 2011 representing close to twelve customer segmentation and product development, these modernised channels and service delivery platforms, months import cover; systems operations, electronic banking, and process supported by improved processes, are set to provide simplification; the perfect launching pad over the next few years for PNG’s macro-economic indicators are quite healthy, BSP’s card-based rural banking service model, its retail but the business environment in PNG is still faced with Kostas Constantinou, OBE Chairman • A first-of-its-kind major customer acquisition product packaging and service offering, its total customer many challenges. Political stability is being tested, as the campaign, “Green Gold”, which introduced about banking solutions in the small to medium enterprise constitutional provisions for eligibility of executive power 150,000 new customers to BSP; segments, its online driven corporate solutions, and its have come under challenge during 2011, and whilst the BSP’s results in 2011 reflect steady net growth on a highly personalised BSP First service. impact has not been pronounced at a micro-level, the group basis. Profits are up by more than 10%, and the • Net growth in customer deposits of K2,261 million predictable macro level reaction by the global business balance sheet has grown by K1,654 million. The results to K9,446 million with market share of 51.84% in The PNG economy showed resilience during a year in community came in the form of a credit risk downgrade are dominated by BSP’s continuing strong performance Papua New Guinea; and total group deposits at which recovery from the global financial crisis of the for PNG and its globally rated businesses, BSP included. in PNG. Whilst that performance has been driven by that K9,366 million; last decade was threatened by another looming in this Amongst concerns high on the list for many investors economy’s very strong growth in the 2011 fiscal year, it second decade of the new millennium, when regional and businesses are security, the protection of commercial has been achieved under some challenging circumstances. • Loans and advances increased by net K959 million neighbours were beset by natural catastrophes and more contractual rights and obligations, infrastructure obsolescence Globally, 2011 has seen Europe continue to grapple with to K4,236 million with market share at 51.4% in Papua New Guinea; total gross loans of the group an intractable debt crisis, popular but violent uprisings Total Assets Net Profit after Tax in the Middle East, natural disasters with devastating is K4,301 million; consequences around the world, and credit downgrades led by the U.S. In 2011, politics, nature, and the human • The introduction of BSP’s international class BSP 355.947 spirit has held sway over earnings, interest rates, and First customer lounge at Harbour City and a full- 11.68 capital markets, driving volatility in stocks, commodities, service branch at Vision City, in Port Moresby; 10.03 283.147 bonds and currencies. In our region, Asian demand for 9.40 • The continued roll out of BSP Rural branches, and 257.118 Kina Billion natural resources continues to fuel growth in the economies Kina Million of natural resource providers including PNG. As the rural customer acquisition initiatives; 228.334 second decade of the 21st century progresses, we see 6.81 191.072 more and more how economic prospects of emerging • The opening