August 20, 2013 1:05 pm
Dodging the bank robbers to tap growth in Papua New Guinea
Bank South Pacific, the largest lender by customers and assets in Papua New Guinea, closed its branch in Kerema, the main town in isolated Gulf Province, after it was held up by a notorious armed robber in 2008.
Such heists are commonplace in one of the world’s most lawless nations.
However, with no other bank serving the 200,000 people of the poverty-stricken province, BSP chief executive Robin Fleming recently decided to reopen the branch.
“At some stage we have to look to the future, not the past,” he says.
Despite rampant crime and social inequality and education and health standards akin to those of war-ravaged Afghanistan and the Democratic Republic of Congo, PNG’s economy has been booming.
The development of a $19bn liquefied natural gas project by ExxonMobil and the exploitation of PNG’s gold, copper and oil wealth have helped gross domestic product grow by an average of more than 8 per cent over the past five years.
In a country of more than 7m people fewer than 1.5m have bank accounts. Providing basic financial services to the residents of isolated areas is a vital step toward diversifying the economy away from a reliance on extractive industries.
There is also a small but fast-growing middle class, which Mr Fleming estimates numbers several hundred thousand, who want better access to a greater range of financial products.
However, bankers concede that reaching this potential market is no easy task. Security is a significant concern and a financial drain.
BSP employs 450 security guards among its 3,000 staff. It lost 7m kina ($3m) to fraud and robberies last year, compared with pre-tax profits of 535m kina, and spends 4m-5m kina a year chartering aircraft to move its money around the expansive, mountainous country.
Westpac and ANZ, the two lenders from neighbouring Australia that serve the domestic market alongside BSP and Malaysia’s Maybank, face the same challenges.
“We could put our cash in a truck and drive it down the Highlands Highway but it wouldn’t be there at the other end,” says Mark Baker, ANZ’s managing director in PNG, referring to the country’s main artery and a notorious robbery black spot.
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Even air transport is not always safe. In 2007, an armed gang hijacked a BSP money transfer plane and forced it to land on a second world war-era airstrip, where a waiting boat whisked the cash away.
A bigger challenge is PNG’s rugged geography and poor infrastructure, which means every bank branch needs its own – expensive – electricity generators, satellite connections and back-up telecoms systems.
Access has improved and costs have fallen with the spread of mobile telecoms after the entry into PNG in 2007 of Digicel, the frontier market-focused network operator run by Irish billionaire Denis O’Brien.
Since then, mobile phone ownership has risen from less than 5 per cent of the population to more than a third, making mobile banking a realistic possibility.
ANZ, which like Westpac traces its history in PNG back more than a century to the days of Australian colonial rule, has about 80,000 retail customers in the country and aims to add several hundred thousand more in the next two to three years as it introduces mobile banking services.
PNG is already a significant part of its Pacific business, which reported an underlying profit of A$190m last year and accounted for a fifth of ANZ’s profits in Asia-Pacific, Europe and America.
Westpac, which has tripled its customer base to 150,000 in the last three years, is also launching a mobile banking platform.
The real difficulty, says Ashleigh Matheson, managing director of Westpac in PNG, is not signing up depositors but persuading people with minimal experience of modern currency itself to make regular online transactions.
Mr Matheson says PNG’s banks make a sizeable portion of their profits from foreign exchange and a small number of major corporate and retail clients, and expects that remote-area banking services will be unprofitable for many years.
ANZ, BSP and Westpac say they consider the extension of mobile banking to isolated areas as part of their “social licence to operate” and hope it will pay off in the long run.
“There’s a new urban middle class that has been educated overseas, wants something better and is starting to assert itself,” says Mr Baker. “When I travel around the rest of the country, I see so much potential but also so much missed potential.”