political

Papua New Guinea

The political connection

WITH a strong belief the commercial banking sector in Papua New Guinea operates mostly for “high and fast returns”, the former Trade and Industry Minister, John Giheno, had signalled 1992 as a year for directing funds into “national development areas”.

“One of the criticisms we hear con stantly,” he had said in last September, “relates to the failure of the financial sector to respond appropriately to the needs of new, small or fledgling domestic

operations”.

Bank-bashing in PNG has become a popular political pastime since 1989 because of the forced closure of the Bougainville copper mine and the effects of depressed economic conditions world wide which have virtually wiped out profitability in the nation’s important

agricultural sector.

Now, with a new government, led by two successful businessmen prime minister Paias Wingti and his deputy and finance and planning minister, Sir Julius Chan a new wave of rhetoric is bound to develop.

Indeed, soon after his appointment to the Finance portfolio, Sir Julius vowed to reshape the economy by working closely with banks.

Since 1990, there have been five commercial banks operating in PNG (Niugini Lloyds International Bank Ltd was taken over by the Australia and New Zealand Banking Group (PNG) Ltd (ANZ) in July, 1990). They are the PNG

Banking Corporation (PNGBC),

Westpac Bank PNG Ltd, Bank of South Pacific, ANZ and Indosuez Niugini Bank Ltd.

Overall, in 1990, the commercial banks recorded a pre-tax operating loss of K 2.9 million compared to a profit of K 21.2 million in 1989. The central bank, Bank of Papua New Guinea (BPNG), attributed the decline to “significant loan write-offs by all commercial banks as a result of the downturn in economic activity and the crisis in the North Solomons Province following the closure of Bougainville copper mine”. It said a significant proportion of the loan write offs were related to credit advanced to the agricultural sector and to customers in the non-mining private sector in the

province.

The dramatic financial losses associated with the mine were reflected in the annual results of the commercial banks, though some local banking executives privately stated at the time post- Bougainville results may not have accu rately mirrored the real financial losses on the island.

The BPNG reported in 1991 commer cial banks had lent K 379 million. Only 12 per cent was advanced to households and less than 4 per cent of the total went to housing. Business lending represented 84 per cent of the total. Since 1988, PNG statistics show lending to business has increased from 77 per cent to 84 per cent in 1991, while household lending has decreased from 15 per cent to 12 per cent in the same period. Home loans rep resents less than half the household lending in each of the four years.

High interest rates and short repay ment periods (usually less than seven years) prompted the government to establish the PNG Home Finance Co Ltd in 1990. The aim was to give low and middle level income earners easier access :o housing finance. Its success will not be evident for another few years partly because statistical reporting in PNG akes a notoriously long time to eventu ite and, even then, past experience has hown much reporting to be ineffective [flowing malpractice and corruption to lourish.

The BPNG stepped up supervision of he societies and issued new directives in 988 to govern their management and peration. As of June, 1991, there were 22 societies with a membership of 04,275 (this compares with 155 societies

i 1980 with membership of 115,406).

\)tal assets under their control was L lOO.l million in 1991, compared with L 37.7 million in 1980.

But of the 122 societies which are igistered with the central bank, only 32 re active. Loans to members by June, 991, totalled K 66.7 million. (The total Dimmercial banks’ household loan port ilio was K 45.7 million in 1991).

BPNG said in 1990 most loans from .vings and loan societies were for school es, purchase and repair of motor chicles, building materials and tools, air res and holidays, medical and funeral :penses and “a substantial increase in ide prices and wedding expenses”.

Merchant banks and finance com mies in PNG, of which there are no ore than half a dozen, reported an ;erall net profit 0fK0.6 million in 1990 >.4.3 million in 1989). Again, as with mmercial banks, these institutions are ared to service the business sector with Dst of their money extended for lease lancing and commercial lending. A ar ago BPNG launched a special Kl 2 Hion financing facility made available the European Investment Bank, EIB, support the development of

nationally-owned small to medium sized business enterprises.

A rapidly growing organisation rep resenting grassroot small businesses, Liklik Bisbis Manmeri Association (Likba), was quick to criticise the facility as ineffective for the majority of small business operators as the loans ranged from K 60,000 to K 500,000. Likba’s president, Nalden Matautu, contended most small businesses were seeking amounts of less than K 20,000 and the facility would not benefit the majority of PNG’s business operators.

His concerns were later that year backed by BPNG governor Sir Henry Toßobert when he said commercial banks lacked the expertise to deal with loans for small businessmen. Sir Henry said small enterprises normally sought loans ranging from KlOOO to K4OOO.

Sir Julius, critical of the bank’s operation and ineffectiveness, wants

changes possibly converting it into a

rural lending arm of the government owned and profitable PNGBC.

The rural sector, barely keeping above water, has since received news of yet another commercial bank being formed to provide funds for low to middle-sized rural customers. According to the former finance and planning minister, Paul Pora, who granted the licence to the Archdiocesan Development Fund Bank ing Group Ltd, in June 1992, people in rural areas had been denied banking services for too long. The Catholic church owns 51 per cent and PNG companies and individuals are to own the remainder.

A foreign merchant bank indicated it is interested in gaining a silence of the profits to be made here. Former Queens land premier Sir Joh Bjelke Petersen, now president of Murray Merchant Pacific Bank, flew into Port Moresby last December in the company of Paul Pora.

Sir John claimed to have a K2OO million credit line from European banks for investments in the Pacific and PNG had “major potential”.

The Vanuatu-registered bank has not been heard of since publicly at least but Sir Joh indicated at the time he was interested in the highly profitable area of resource development.

Sir Julius Chan, fiercely protective of PNG’s natural assets, warned during the 1992 election campaign “shady deals with shadowy offshore entrepreneurs and financiers” would be fully investigated, particularly in the minerals and energy sector.

And almost a victim of the axe in February this year, while finance minis ter Pora was still the boss, was PNGBC managing director Sir Mekere Moranta.

Coincidentally, the attempt to sack Sir Mekere was reportedly revenge for a K 2.6 million loan he approved for Island Aviation, a small airline owned by Sir

Julius. The then prime minister, Rabbie Namaliu, also denied he intended to sack Sir Mekers for approving the loan to Sir Julius.

Bank staff who did not want to be named suggested another reason for the removal of Sir Mekere. They said politicians who owe the bank a lot of money could be responsible. The next day, in PNG’s daily newspaper the Post Courier , it was revealed Pora was K 4 million in debt and most of his businesses had been placed in voluntary receiver

ship.

Sir Mekere had faced similar ac cusations previously in March 1990. MP Joseph Aoae claimed Paul Pora had received “preferential treatment” from the PNGBC when an K 804,000 loan was granted to a company whose directors included Pora. Sir Mekere defended his decision, saying the loan was granted on strictly commercial lines.

The attempt to sack Sir Mekere,

PNGBC managing

director, was reportedly revenge for a K 2.6 million loan he approved for Island Avi ation, a small air line owned by Sir Julius Chan.

But financial sector corruption and mismanagement was highlighted in July last year with the demise of the finance institution, Inter-Pacific Finance Ltd.

The National Court instructed the com pany be wound up after it failed to repay contributor’s money and interest.

The liquidators later reported K2.2 million deficiency between assets and liabilities.

And then there is the Traditional Wealth Exchange Bank set up in East New Britain Province. Dealing in shell money, Tabu and the Kina and Toea, the bank is the brainchild of provincial politician Henry Tokubak who said he aimed to provide financial assistance to simple villagers who may have been turned away from commercial banks when seeking a loan.

“My doors are open to anyone at all,”

Tokubak said.