C M Y CM MY CY CMY K ai1606871160127_AR2020_Inside Cover_Front & Back.pdf 1 02/12/2020 11:06:11 am C M Y CM MY CY CMY K OUR BANK OUR PEOPLE www.bsp.com.pg Our Mission To create value for our stakeholders by delivering innovative and cost effective financial services. CONTENT Strategic Report Chairman’s Report 4 A Brief History of BSP 6 Board of Directors 8 Group CEO’s Report 12 Group Historical Summary 18 Contributions by BSP to PNG 19 Group Highlights 20 Sales 22 Operations & Support 24 Broader Group Highlights 28 Cook Islands 30 Fiji 30 Samoa 31 Solomon Islands 31 Tonga 32 Vanuatu 33 Subsidiaries 34 BSP Finance 36 BSP Capital 37 BSP Life 37 Corporate Governance 40 Corporate Governance Report 42 Remuneration Report 50 Financial Statements 62 Directors’ Report 64 Statements of Comprehensive Income 65 Statements of Financial Position 66 Statements of Changes in Shareholders’ Equity 67 Statements of Cash Flows 68 Notes to the Financial Statements 69 Independent Auditor’s Report 115 Shareholder Information 120 Directors’ Information 124 Management Teams 126 Executive Management 128 Broader Group 132 Overseas and Subsidiaries Directory 133 Subsidiaries 134 PNG Branch Managers and Directory 136 Corporate Social Responsibility 138 Sunset shot, Rabaul, East New Britain Photo by Rocky Roe Photographics OUR CORE VALUES TEAMWORK We work with, and for, each other; we progress together. COMMUNITY We respect, value and support the communities in which we operate. PROFESSIONALISM We commit ourselves to continual self-development to achieve standards of excellence in our performance. QUALITY We are commited to excellence whilst striving for continous improvement in products and services. PEOPLE We respect and value our people and our customers. LEADERSHIP We inspire, we change, and we live our values, and lead by example. INTEGRITY We are honest, committed, trustworthy and reliable in our dealings with our customers and each other. APRA Disclaimer: BSP is not authorised under the Banking Act 1959 (Commonwealth of Australia) and is not supervised by the Australian Prudential Regulation Authority (APRA). BSP’s products are not covered by the depositor protection provisions in section 13A of the Banking Act 1959 and will not be covered by the financial claims scheme under Division 2AA of the Banking Act 1959. Strategic Group Broader Corporate Financial Shareholder Management Corporate Social Report Highlights Group Subsidiaries Governance Statements Information Teams Responsibility Chairman’s Report Sir Kostas Constantinou, OBE The majority of 2020 has been uniquely difficult for the customers motivation for pursuing a listing on ASX is to gain access to new and communities we serve. BSP, like most South Pacific businesses, sources of capital. Despite BSP being listed on the PNGX since 2003, has had to manage unprecedented disruption, without doubt the there are a number of natural market constraints that BSP faces in greatest since its landmark amalgamation in 2002. sourcing new forms of equity capital. Accordingly, BSP is considering an ASX listing as a means of mitigating some of these constraints. While BSP and our people were confronted with a number of challenges in 2020, I am proud of how we responded, given the An ASX listing will also facilitate increased liquidity for BSP's critical role we play in supporting South Pacific economies and our shareholders. communities. Despite these challenges, BSP continued to perform well, experiencing a small decline (9.5%) in 2020 profitability to PREPARING FUTURE LEADERS K806m. This strong profit result was achieved while we maintained capital discipline and prudent balance sheet management, ensuring BSP’s Leadership and Management Development Program our commitment to financial strength across all capital, funding and (LMDP) has been in place since 2014 and identifies future leaders liquidity metrics. We finished 2020 with a capital adequacy ratio of in emerging, developing and senior role categories for internal 23.2% (2019 = 22.0%) and leverage ratio of 10.3% (2019 =10.5%), secondments and development training in Australia and Singapore ratios that remain well in excess of the 12% and 6% prudential to provide participants with the skills necessary to take on more requirements respectively. senior roles within BSP. STRATEGY Pleasingly, all 33 LMDP participants successfully completed their online programs from the INSEAD and the Melbourne Business As raised in last year’s annual report, my fellow directors and I are Schools. Further, seven (7) participants were provided opportunities pleased to report that BSP’s diversification strategy initiated in 2015 to present to the Board during 2020. continues to gather momentum. Today, less than three-quarters of BSP’s profit is generated by our PNG banking operations, illustrating Notable LMDP participant promotions during 2020 included: the strong progress our offshore branches and subsidiaries are making. • Dennis Konu – Deputy General Manager Customer Experience & Retail Support Our offshore banking business growth has continued, with five (5) of • Peter Komon – Deputy General Manager Retail Sales & Customer the six (6) operations now ranked “number one” in lending volumes Service in the countries they operate in, enhancing BSP’s position as the • Raymond Logona – Senior Relationship Manager Corporate South Pacific’s leading bank. • Bertha Auwi – Head of Paramount Banking • Futua Singirok – Head of Financial Risk Management Further, our Cambodia and Lao Asset Finance joint ventures are • Kami Gawi – Head of Business Controllers performing well and we anticipate future growth prospects in these • Ngairinga Kotrine – Relationship Manager, Cook Islands markets. With our focus on delivering sustainable growth, we will • Villiwalaka Roalakona – Head of Project Management Office continue to adopt a measured approach to exploring future asset finance growth opportunities within the Mekong Delta. BOARD RENEWAL Given BSP’s success to date, we will maintain this strategic direction Board renewal remains a continuing process and in April, we and as advised in my October 2020 PNGX announcement, we have welcomed Priscilla Kevin, who joined as a BSP Director. Priscilla is an begun to assess a potential dual listing on the ASX. BSP's primary IT professional and entrepreneur specialising in Enterprise Resource 4 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2020 Strategic Group Broader Corporate Financial Shareholder Management Corporate Social Report Highlights Group Subsidiaries Governance Statements Information Teams Responsibility LOAN MARKET SHARE DEPOSIT MARKET SHARE Rank Rank PNG 65% 1 PNG 65% 1 Solomon Islands 52% 1 Solomon Islands 53% 1 Tonga 41% 1 Cook Islands 47% 1 Cook Islands 38% 1 Tonga 43% 1 Samoa 30% 1 Samoa 29% 1 Fiji 26% 1 Fiji 26% 2 Vanuatu 15% 4 Vanuatu 17% 4 Planning (ERP) Support Advisory. She has been an Independent OUTLOOK Committee Member of the BSP Board Risk & Compliance Committee since 2018. The global roll out of COVID-19 vaccinations during 2021 will permit some degree of normalcy to international travel which will provide Priscilla’s appointment maintains the Board’s diversity, as she much needed support for the hotel and airline industries and will replaces Freda Talao who resigned at the end of 2019 having served stimulate the PNG economy and economies across the Pacific. her term under the Bank of PNG guidelines. The recent announcements from Total and the PNG government In July we farewelled Augustine Mano, who resigned as a BSP confirming Papua LNG will be progressing in early 2021 will benefit Director after almost six years. Augustine Mano served the Board many and permit businesses to commence planning for future LNG with distinction and his insightful contributions and understanding of related activity. the oil and gas sector in PNG were invaluable. With the vaccine rollout, Papua LNG announcement, coupled with In December, Frank Bouraga was appointed to BSP’s Board. Frank is Porgera mine and Wafi-Golpu (K18.4b) negotiations progressing well, a CPA-PNG qualified Professional Accountant with over 25 years in we are expecting a much-improved 2021 on the back of these major accounting practice presently being Partner Assurance and Business projects proceeding in the near term. Advisory with SBC Solutions. Prior to SBC Solutions, Frank was the Country Managing Partner for Ernst & Young PNG for 5 years as Given the above, the Board and myself are confident BSP will have an audit and business advisory services partner. He also worked the economic conditions, people and financial strength to execute with PWC for over 7 years and was previously with Star Business effectively against its strategy. Consultants between 2004 and 2011. Finally, on behalf of the Board, I would like to thank our more than Frank has been an Independent Committee Member of BSP’s Board 4,300 people for their hard work in arguably our most challenging Audit Committee since October 2018. year and how they responded admirably to the benefit of our customers, community and shareholders. FINANCIAL PERFORMANCE Our revenue performance was slightly down compared to prior year with a small (1.2%) decrease in income to K2.15 billion. However, the result was not unexpected, given COVID-19 economic and operational impacts, coupled with delays to key domestic resource projects producing a challenging period for PNG, our largest market. Recognising this challenge, cost control measures were employed Sir Kostas Constantinou, OBE that reduced operating