32706 - BSP Senior Loan

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Summary of Investment Information

Project Number

32706

Company Name

BSP Financial Group Limited

Date SPI Disclosed

Mar 1, 2013

Country

Papua New Guinea

Region

East Asia and the Pacific

Projected Board Date

Apr 1, 2013

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Jun 12, 2021

Department

Global Industry, Financial Markets

Industry

Financial Markets

Previous Events

Approved : Jun 11, 2014
Signed : Jun 27, 2014
Invested : Jun 13, 2016

Sector

Commercial Banking - General

Project Description

Established in 1957 as a branch of the National Bank of Australasia (NAB) and incorporated as Bank of South Pacific (BSP), a wholly owned subsidiary of NAB, in 1974. In 1993, National Investment Holdings Limited, a nationally-owned corporation, acquired NAB’s 87% shareholding, and the 13% that was at that stage held in public hands. In April 2002 BSP purchased the state-owned Papua New Guinea Banking Corporation Limited under the State''s privatization program. BSP was listed on the Port Moresby stock exchange in 2003.

BSP is Papua New Guinea’s (PNG) largest retail and commercial bank with assets of USD6.7 billion (as of June 30, 2012), with a dominant market position in PNG with approximately 50% of loans and deposits.

The proposed project is expected to: (i) provide US Dollar medium/long term funding to BSP, the largest and only indigenous bank in PNG, to catalyze private sector growth, and (ii) expand access to finance for PNG based businesses which are central to the development of PNG economy.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	30.0
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Straight Senior Loan	Loans to SME Borrowers

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

IFC''s role is expected to encompass the following: (i) providing the Bank with a long-term USD loan, enabling it to expand its USD lending program to serve increasing USD demand from PNG clients with USD receivables but a limited access to USD funding; (ii) demonstrating confidence in and support for the largest and only indigenous bank in PNG implementing its long-term strategic goals of regional and increasing access to finance for local businesses which are drivers of future economic growth and employment creation; (iii) IFC''s long-term loan will also help the Bank reducing maturity mismatch as majority of BSP''s deposit base are short-term; and (iv) mobilize the syndication fund to provide much needed long-term liquidity support to BSP, helping the leading bank to maintain long-term financial sustainability given very limited available capital in the market.

The Project is expected to measure the following development impact: (i) at least 412,000 loans disbursed by the Bank during the life of Project from a baseline of 51,864 loans disbursed during 2012; and (ii) the USD volume of outstanding loans reaches USD4,450 million by the end of 2020 (10% average annual growth) from a baseline of USD2,345 million as of December 31, 2012.

The Project is expected to have significant development impact on account of:
(i) Increase access to finance: The Project is expected to provide long-term funding needed by the largest bank in PNG to underpin the future growth of the PNG economy by offering USD facilities to PNG based businesses, who cannot obtain the USD funding they require to grow their business as currently only non-PNG banks, with their smaller and centralized branch networks, provide USD facilities;
(ii) Market development: By supporting the systematic and only indigenous bank in PNG, the Project will allow BSP to maintain its position as a strong local player that can compete on a level playing field with its international competitors in the region. The strengthening of the PNG financial sector can act as a stabilizing factor as local business owners gain access to additional finance;
(iii) Employment: the Project will provide much needed liquidity to local businesses, who play an important role within the economy and contribute towards job.

E&S Category Rationale / Risks and Mitigation

This transaction involves a senior loan to BSP and the overall portfolio risk is considered to be medium. The project has therefore been categorized as FI-2 in accordance with IFC’s Environmental and Social Review Procedure. BSP as a universal bank provides retail, SME and project/corporate finance lending to its customers. The Bank’s corporate lending accounts for approximately 70% of the total portfolio, but the key sectors of lending (real estate/renting services, construction, retail, post/telecommunications) mainly entail limited adverse E&S risks and impacts that are few in number, generally site-specific, largely reversible and readily addressed though mitigation measures. For this project the client will be required to screen loans against the IFC Exclusion List, the E&S laws and regulations of Papua New Guinea and the IFC Performance Standards.

The main E&S risks and impacts of the project derive from the E&S risks of the Bank’s lending activities, the capacity and systems in place to manage these risks, and the Bank’s practices with regard to labor and working conditions. BSP has an Environmental and Social Management System (ESMS) outlining the procedures, responsibilities and tools for undertaking E&S risk management, but it needs to be upgraded in line with the IFC 2012 Sustainability Framework. Staff has been designated to oversee implementation of the ESMS and training has been provided. The bank also regularly reports to IFC on its E&S performance. BSP was found to be in compliance with the requirements of PS2 on Labor and Working conditions.

Contacts

For Inquiries About the Project, Contact

Mr. Robin Fleming, Deputy Managing Director and Chief Risk Officer
Bank of South Pacific Limited
Ravalien Haus, PO Box 78, Port Moresby, NCD
Papua New Guinea
Tel: +675 3056707 Fax: +675 3213428Email: mailto:rfleming@bsp.com.pg
Web: http://www.bsp.com.pg

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This Summary of Investment Information (SII) is prepared by IFC to disclose a factual summary of the main elements of the potential investment. It also includes findings and recommendations related to environmental and social considerations regarding this potential investment. The purpose of the SII is to enhance the transparency of IFC’s activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this SII is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein. It is distributed in advance of IFC Board of Directors’ consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following SII is disclosed in accordance with IFC's Access to Information Policy (AIP) that went into effect on January 1, 2012.

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Task Description	Anticipated Completion Date
Upgrade the ESMS including guidelines for its implementation	On or prior to Disbursement

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