Pacific bank champ a stellar earner

It's common to brand Australian banks as "the world's most profitable". But are they? The most profitable bank in Australasia is actually in Papua New Guinea.

Bank South Pacific, based in Port Moresby, in its 2014 annual report, released this week, shows a return on equity in 2014 of 29.7 per cent, more than 10 percentage points better than the ROE of any large Australian bank.

Over the last six years BSP's ROE ranged from 27.4 per cent (in 2010) to 30.6 per cent (in 2009).

The return on assets in 2014 was 3.2 per cent, a level similar to recent years.

Bank South Pacific has a market share of around 50 per cent, an assessment of PNG's banking sector from Standard & Poor's this week shows.

ANZ, Westpac and Maybank account for another 39 per cent of the market between them.

"Commercial banks in PNG have an aggressive risk appetite," S&P said, "although this is somewhat expected given the inherently risky nature of lending in PNG.

"Although a higher tolerance of risk is apparent - particularly as 90 per cent of lending is to the corporate sector, and single-entity concentration is high - we believe PNG's commercial banks spread their risk reasonably well across industry sub-sectors," the ratings agency said.

The government has about an 18 per cent direct ownership Bank of South Pacific. Through government-controlled superannuation funds the government has a further indirect ownership of about 40 per cent in BSP.

Share ownership by fund managers outside PNG is very low, if the list of the top 20 shareholders is any guide.

Bank of the South Pacific posted a net profit of K503 million (A$243 million) for the 2014 financial year, all thanks to the gains made on its wholesale banking segment.

The wholesale segment produced a net profit of K442 million (A$211 million), an increase of K$222 million or 50 per cent.

Retail banking which saw a major drop of K139 million (A$66 million) to record a net profit of K33 million (A$16 million) for 2014.

Total assets for the bank stands at K16 billion (A$8 billion).

The capital adequacy ratio stood at 24 per cent.

The impaired loan expenses for the group went down to K77 million (A$37 million), compared to K79 million (A$38 million) for the previous year.

In January this year, BSP took over five Westpac national operations in Samoa, Cook Islands, Solomon Islands, Vanuatu and Tonga in a deal worth A$125 million.