BSP's conquest of Pacific banks continues

The Bank of the South Pacific's reach across its home turf is suddenly looking much stronger, following yesterday's announcement that New-Guinea headquartered BSP is to take on five Westpac national operations in the region.

This is a logical next step-up from its purchase of the Commonwealth Bank of Australia's Fiji operations in in 2009.

The deal with Westpac is worth A$125 million, and will see the BSP Group take over Westpac's operations in Samoa, Cook Islands, Solomon Islands ,Vanuatu and Tonga by mid-2015, subject to the parties obtaining the expected statutory, regulatory and third party approvals.

BSP said in a statement that it views itself as a major PNG and South Pacific banking and finance entity, with a strong regional business. With this in mind, BSP has pursued a diversification and expansion strategy via both geographic and business line opportunities.

"This expansion into these island countries positions BSP to make its mark as the preeminent bank in PNG and the South Pacific," said CEO Robin Fleming.

Westpac, Australia's second-largest bank by market value, said the move would improve its return on equity in the region but wouldn't have a material impact on its financial position.

The sale comes just before Westpac welcomes new chief executive Brian Hartzer, who replaces Gail Kelly on 1 February and who has cited the growth corridor of Asia as a strategic focus.

Westpac will retain its operations in its largest Pacific markets of Fiji and Papua New Guinea. It is the longest serving bank in Fiji, having been in operation there for 113 years, and was the first bank in PNG.

"These markets support our international aspirations by being closely tied to Asia, Australia and New Zealand and the strong flows of capital, trade, and migration," said Westpac Institutional Bank Chief Executive, Rob Whitfield.

"Indeed, we continue to see significant opportunities in both Fiji and PNG markets and will continue to invest in expanding our infrastructure and capability in the region."

Westpac Pacific's general manager, Greg Pawson, said it was vital that Pacific islanders were supported by a bank that was expert in operating in smaller markets. It was clear that BSP was best placed, he said.

BSP's chairman, Kostas Constantinou  described the move as a "positive example of people of the South Pacific Island nations developing their capabilities in regional commercial and economic activities."

BSP set off on a regional expansion strategy in 2004, when it first acquired Westpac's Niue branch - the only bank on the island. In 2006, it took over the Habib Bank in Fiji and a year later acquired banking and financial services businesses in Solomon Islands. In 2009 BSP acquired the Colonial National Bank in Fiji, from the Commonwealth Bank of Australia.

At a South Pacific Central Bank Governors' meeting last year, the Governors acknowledged the continued expansion of BSP in their jurisdictions, and also its intentions to expand to other Pacific Islands, making BSP "a systemically important financial institution in the region," they said in a joint statement.

BSP's 2013 annual report said the group achieved a consolidated operating profit before tax of K607 million (A$294 million) for the 2013 financial year, up 11.3 per cent on 2012. Total assets of the bank at the end of 2013 were just over K15.3 billion (A$7.2 billion).

Westpac opened its branches in Vanuatu in 1971, Tonga in 1974, Samoa in 1977, the Solomon Islands in 1985 and the Cook Islands in 1988.