Bank South Pacific - Giaman Lain

7/29/2019 Bank South Pacific - Giaman Lain

http://slidepdf.com/reader/full/bank-south-pacific-giaman-lain 1/27



2

William Walo

Steve B Ghamug

Antoine Thyna

Sowany Joseph



Table Of contents

3



EXECUTIVE SUMMARY

The Board of the Bank South Pacific Limited has a vision and strategy that embraces long-term

growth. It has the primary responsibility of focusing on organic growth within Papua New

Guinea and will consider expansion prospects beyond the national boundaries whenopportunities present. The Board and the management are working closely to pursue the bank’s

business strategies and vision. BSP has developed over the years to become a leader in the

banking industry in PNG.

In 2004, BSP for the first time in its business history, expanded operations to the international

level with the acquisition of the Westpac interests in Niue. In addition, the BSP is finalizing

arrangements to acquire the National Bank of Solomon Islands and the Habib Bank in Fiji.

BSP has laid the foundation of it operations on the willingness of its staff and a world class

banking platform, backed up by dominant market share and well structured and strongly

capitalized balance sheet. It has laid out its key performance indicators (KPI’s) and the

achievements are remarkable compared to similar KPI’s of peer regional banks in Australia.

The international Standard and Poors in 2005 rated BSP with the highest possible rating of B+

with a stable outlook. The Board and management and the shareholders are delighted with the

achievement by BSP. This has set the scene for more exciting journey ahead in 2006 and

beyond.

4



1. INTRODUCTION

The Bank South Pacific (BSP) commenced operations in 1957 as a branch of the Australian

National Bank in Papua New Guinea (PNG). The principle activity of the Bank South Pacific

(BSP) is to provide commercial and finance services to the people of PNG. With its

headquarters located in Port Moresby, BSP has grown over the years to become a leading bank

in PNG. It currently has 39 branches in the country and one offshore in Niue and is completing

the acquisition of the National Bank of Solomon Islands and the Habib Bank in Fiji.1 In a major

move in 2001, BSP merged with the PNG Banking Corporation (a wholly owned PNG

Government subsidiary and largest national bank) under an ‘amalgamated deed’ under the

privatization program, which cost BSP K140.56 million2. BSP is one of the largest private

sector incorporated businesses in PNG and is developing to be a local “icon”

3

. It is listed on thePort Moresby Stock Exchange (POMSOX) since 2003 and is incorporated under the Companies

Act of PNG and is an authorized Bank under the Banks and Financial Institutions Act of PNG.

Its registered office is located along Douglas Street, Port Moresby.

This paper was prepared by a team of MBA students from the University of the South Pacific

with the objective of developing a Strategic Plan for the Bank South Pacific for 2006 to 2008 .

The report was based on information available mostly on the website. The team used various

strategic management tools including analytical matrices as introduced by Fred David (2006)4

to develop the strategic plans for BSP. The paper begins by introducing the bank and discusses

the industry and markets in the region, it then conducts a situation analysis, reviews key

strengths, weaknesses, threats and opportunities (SWOT analysis), then develops management

matrices such as the SPACE, BCG, CPM, GPS etc. It then assesses and evaluates the bank’s

strategies, vision and mission statements, values and objectives, business and financial

conditions including comparisons with competitors and concludes with a list of strategies and

goals, costs and a control system including implementation schedule.

2. SITUATION ANALYSIS

1 PNG Post Courier 06/10/062 PNG currency is expressed in Kina and Toea. At the current exchange rate K1.00 = US$0.32 & F$0.52 av.3 BSP Managing Director – Garth McIlwain’s address to shareholders in 2006 AGM4 David, F., Strategic Management, Concepts and Cases, 11 th ed. pp.5-7, 364-366

5



Bank South Pacific has been in existence for nearly 50 years going through various positive

transformations in the process. It has maintained local dominance post merger with a major

52% share of the domestic market. BSP’s continuing expansion of services to nearly all corners

of the country is an indication of its value for customers, obligation to shareholders and the

general public and a reflection of an effective management system. The BSP currently employs

in excess of 1,900 staff and this is expected to increase.

2.1 Business Market Summary

BSP is in the comfort zone in terms of local market dominance in PNG although there is

always room for expansion. In other words, the existing business vision and strategies

are conducive to local conditions. Exposing operations to regional and internationalmarkets will pose challenges for the management. With the penetration of the Solomon

Islands and Fiji markets, BSP has however shown its strength and capability to position

itself strategically in the region for further expansions. As an added advantage of

minimal transportation cost and the service nature of its operations, BSP is expected to

increase coverage in the region.

PNG has a population of 5.8 million people, which is more than double the total

population of the Pacific Island Countries combined5. 13% of the population lives in the

urban areas. This may be seen as a reason for BSP’s focus on organic growth. However,

the challenges of globalization, increased competition and profitability opportunities are

forcing companies to reconsider their strategies and the way they do business.

Regional trends

It is estimated that there are currently in excess of 50 banks and financial institutions

operating in the Pacific region. A majority of the banks are either internationally

owned or Government controlled. These consist of the ANZ and Westpac banks and

the Bank of Hawaii and Bank of Guam (mainly in the smaller PIC’s). Of the total

banks in the region around 65% are international commercial banks. The smaller

PIC’s such as Kiribati, Marshall Islands, Palau and Tuvalu have very little to no

private domestic banks. In Tuvalu for example, there are no commercial banks and

5 ADB Pacific 2020-Table 2.1-‘Basic characteristics of Pacific Island Countries”

6



all banking is done through the State bank.6 The Melanesian countries such as PNG,

Solomon Islands, Fiji and Vanuatu have comparatively higher number of banks.

Figure 1 shows the types of banks for each of the PIC’s. It should be noted that

some banks may have changed names, merged with other banks, moved operations

or closed down.

Figure 1 - Banks in the Pacific Region(Not available: Niue and Cook Islands)

The graph indicates one type of bank per country. For example Vanuatu has six

different types of banks classified as ‘Others’. PNG for example has two types of

‘other’ banks. The chart does not indicate market share.

Industry Growth

The growth of the banking industry in the region is said to be slow.

On a localized front, Fiji has seen an increase in foreign direct investment (FDI) in

various international investments, including banking and finance services.

BSP is the leading domestic commercial bank in PNG facing competition from

major international banks such ANZ and Westpac. It is expanding and has recently

announced the opening of a new branch in Moro, a mineral resource haven in the

rugged highlands of PNG. This brings to 40 the number of BSP branches in PNG.

6 http://www.portalino.it/banks/links_oceania.htm

7



BSP has tapped into the two largest markets in the region – Fiji with a population of

840,000 and Solomon Islands (521,000). This positions BSP strategically in the hub

of the region.

Market geographies

The local physical geography is considered tougher than the region due to the

ruggedness of the country and accessibility difficulties. 87% of PNG’s population

lives in the rural areas and 13% in urban centres in the provinces of PNG. BSP has

banks established in all major towns, districts down to the local level and it has

managed well bringing services to the rural people.

BSP Headquarters, Port Moresby, PNG BSP in Alotau, Milne Bay Province, PNG

There is little geography hindrance to BSP when establishing in the region (Fiji and

the Solomon Islands) in terms of accessibility and infrastructure support. There are

no major transportation costs, however reliable air service, communication and

technology and infrastructure are readily available.

Technology and Innovation

BSP provides various banking services through a network of computerized banking

systems and innovative electronic facilities made available to customers on-line,

8



including smart cards, and electronic customer signature scanning for branches,

international Visa Card acquiring, generic ATM installation expansion and internet

banking for personal and corporate clients. BSP has a very informative and fully

fledged website service where the shareholders, customers, individuals and

businesses in PNG and abroad can access to learn more about the bank and its

products and service offerings. Various reports such as the Annual Reports and

newsletters, exchange rates and other important issues are also available.

Training

BSP accords high priority to training and development of its human resources to

acquire the necessary skills to execute their duties effectively. As a wide variety of

skills are required by BSP, employees at all levels are provided with on-the-jobtraining and professional training with occasional in-house training, self-learn

packages and selected external courses.

A considerable staff training program to upgrade branch teller systems and branch

back office processing was conducted in 2005 to better serve customers in the

remote areas. Also in the same year the General Manager Human Resources

completed a world-class human resource Performance Management System.

BSP also conducts a Management Trainee Program for young graduates in the

fields of Business, Economics, Accounting, Marketing and Information Technology.

The graduates are recruited direct from the local universities and are trained under

strict professional development programs whilst attached to the seven Strategic

Business Units. After an initial 12 months, they then proceed to the Bank’s High

Growth Potential Program where their careers will be guided and monitored

through the BSP annual Management Review process to prepare them for

supervisory and management duties.

2.2 SWOT Analysis

The SWOT anlaysis consists of the EFE and IFE matrices.

The key external factors (EFE) in threats and opportunities which influence bank

operations are listed below. Also listed are the internal strengths and weaknesses

of BSP - Key Internal Factors (IFE) in the tables below.

9



Table 1 - Key External Factors (EFE)

The EFE table below shows that BSP external opportunities far outweigh that of

the external threats. The total weighted score of 3.68 (which is above the average

of 2.5) indicates a strong external position for BSP. The immediate notable

opportunity factor is for BSP to complete the acquisition of the NBSI and HBF

and further penetrate the regional market. On the other hand, BSP faces strong

competition from other competitors mainly the international banks.

3.681Total

1.290.42

0.0820.04Depletion of foreign reserve12

0.0620.03Increasing inflation11

0.6040.15Competition10

0.1020.05Political instability and economic downturn9

0.1830.06Total asset invested in domestic government securities8

0.2730.09High risk operating e nvironment7

Threats

2.390.58Total

0.3030.10Buying equity (eg PNG Microfinance Ltd)5

0.4840.11Merging with other banks4

0.3640.09Acquisition of other capital stockbrokers (eg Wau Microbank)3

0.6040.15

Plans for the acquisition of both the National Bank of SI and

the Habib Bank Ltd, Fiji2

0.6550.13Regional market penetration1

Opportunities

SCORERATINGWEIGHT

WEIGHTEDKEY EXTERNAL FACTORS ( EFE)

Table 2 - Key Internal Factors (IFE)

10



0.0220.01Debts recoveries management12

0.6050.12Focus on customer service quality & wealth8

0.1530.05Adequate electronic banking capability and ATMs6

0.0930.03Sound domestic banking franchise7

3.531Total

0.500.32

0.0110.01Regional market share13

0.0310.03Higher credit risk portfolio than commercial banks11

0.1820.09Limited lending opportunities10

0.1220.06Broad and unclear vision9

0.1420.07Organisational structure8

Weaknesses

3.030.68

Total

0.1230.04Capable and dedicated Board9

0.1230.04Adequate staff development and supervision5

0.6550.13Very good capitalization and profitability4

0.5550.10Adequate asset quality3

0.3640.08Very good funding and liquidation profile2

0.4040.09Strong market position1

Strengths

SCORERATINGWEIGHTKEY INTERNAL FACTORS ( IFE)

WEIGHTED

As for the internal factors, BSP’s strengths surpassed that of weaknesses as shown by

the IFE matrix table below. The total weighted score of 3.53 (which is above the

average of 2.5) indicates a strong internal strength position for BSP. The notable

strength of BSP lies in its financial status and customer focus. The major weaknesses

are the regional market share and debt portfolio recovery.

3. SWOT Matrix

A SWOT Matrix was developed using the information analyzed in the IFE and EFE above.

Table – 3 SWOT Matrix

11



WT Strategies

1. Prioritize market segment to

increase profitability. (W3,6,T6)

2. Pursue aggressively loans from

corporate and commercial clients

(W3,T1,2)

ST Strategies

1. Aggressively promote regional

market growth. (S1,S2,S3, T1,T6)

2. Strong company image

(S1,S7, T3,T6)

Threats

1. High risk operat ing environment

2. Total asset invested in domestic

government securities

3. Political instability and economic

downturn

4. Declining Value of focal currency

5. Inflation

6. Competition

WO Strategies

1. Organisational restructure

(W1, W2, O2)

2. Improving operating

efficiency

(W5, O3, O5)

3. Strengthen debts recoveries

Unit (W5,O5)

SO Strategies

1. Acquire and merge with local and

regional banks(S1, S3, S4,O1,O2,O3,O4,O5).

2. Expand and improve on banking

franchise, electronic banking and

ATMs. (S1,S4,S6,O1,O4,O5)

3. Diversify its earnings and asset

profile (S1,S2,S4,S5, O5).

Opportunities

1. Regional market penetration

2. Plans for the acquisition of both theNational Bank of SI and the Habib Bank Ltd,

Fiji

3. Acquisition of other capital stockbrokers

(eg Wau Microbank)

4. Merging with banks

5. Buying equity (eg PNG Microfinance Ltd)

Weaknesses

1. Organisational Structure

2. Broad and unclear vision

3. Limited lending opportunities

4. Higher credit risk portfolio than

commercial banks

5. Debts recoveries management

6. Regional market share

Strengths

1. Strong market position

2. Strong funding and liquidation profile

3. Adequate asset quality

4. Strong capitalization and profitability

5. Staff development and supervision

6. Adequate electronic banking capability

and ATMs

7. Focus on customer service quality &

wealth

SWOT MATRIX

Using the SWOT Matrix the team linked the key internal and external factors as a guide

to developing appropriate strategies for BSP. These are physical alternative strategies

which will be further developed, prioritized and implemented in accordance with

recommended implementation plan.

4. COMPETITIVE PROFILE MATRIX (CPM)

For comparison purposes, similar banks in the region such as National Bank of Solomon

Islands (NBSI) and National Bank of Vanuatu (NBV) were considered to develop a CPM

for BSP. The resultant CPM is shown below. In comparing, the various critical success

factors were measured against weighted ratings for each of the selected banks, BSP

achieved the highest weighted score of 4.18 as compared to NBSI (2.76) and NBV (2.9).

This indicates BSP as being more competitive than the two similar banks in the region.

Table 4 – Competitive Profile Matrix

12



Bank South Pacific Nat. bank Vanuatu Nat. Bank Solomons

Critical Success Factors

2.902.764.181.00Total

0.2730.2730.3640.09Management Experience

0.0110.0110.0110.01Price Competition

0.5240.3930.6550.13Customer Service

0.0210.0420.0210.02e-commerce

0.0220.0110.0110.01Production Capacity

0.0420.0420.0820.04Organizational Structure

0.0000.0000.0630.02Global Expansion

0.4830.4830.8050.16Sales Distribution/loans

0.3030.3030.4040.10Customer Loyalty

0.3330.3330.4440.11Product/Service Quality

0.4530.4530.7550.15Financial Position

0.0420.0210.0420.02Inventory System

0.4230.4230.5640.14Market Share

Wt.ScoreRatingWt.ScoreRatingWt.ScoreRatingWeight

Competitive Profile Matrix (CPM) for BSP

4.1 Competition

In terms of competition, BSP faces stiff competition at the regional level more than at

the domestic level particularly from the international banks. The existence of BSP on

Niue may be of little concern for BSP’s rivals due to the tiny market population fewer

than 3,000. The total PIC population is around 8 million. However, BSP has learnt

plenty from the Niue experience. It sees the arrangement as a “testing pattern and

forerunner” and leverage to enter bigger markets.

The main competitors for BSP are the ANZ, Westpac and Bank of Hawaii. The latter

had established in Port Moresby, PNG few years back but has ceased operation a few

years back. It can be said that BSP is not new to these competitors and the challenges

and has prepared itself well to move forward in the islands.Figure 2 shows the various banking sectors in the region. As can be seen the largest

sector (competitor) is the international banks (65%). BSP has to compete against these

international rivalries to top the banking business in its efforts to go regional and

internationally.

13



Pie Chart

Distribution of Banks in the South Pacific(Excl. PNG, Cook Islands, Niue)

Westpac

9% ANZ

11%Bank of Hawaii

11%

Domestic

35%

Others

27%

Bank of

Guam7%

Figure 2

4.2 Product Offering

The BSP offers various products and services to its customers. This includes business

banking, personal banking and on-line services. For the business banking BSP offers

services such as cheque accounts, international services, loan products, merchant

services, payroll services and term deposits. In personal banking, BSP offers a range of

services to meet customer specific needs. This include cheque accounts, international

services, home loans, personal loans, phone banking, savings accounts, term deposits,

western union and others to the customers’ satisfaction. These services are of the world-

standard.

home loans international services card transactions - ATM personal loans

14



5. BOSTON CONSULTANT GROUP (BCG) MATRIX

Figure 3 – BCG Matrix

Conclusion: BSP has a strong growth rate dominating locally and has a potential to tap into regional and international

markets. Both NBV and NBSI restricted to local market and do not have a strong growth rate

BSP

NBV

NBSI

6. SPACE Matrix

29/7= 4.14-15/7= - 2.14Total

4Productivity, capacity utilization-3Control of products & services spread

4Ease of entry into market-2Technological know-how

4Resourse utilization-3Competition capacity utilization

4Technological know-how-2Customer loyalty

4Financial stability-2Product lifecycle

4Profit potential-2Productivity quality

5Growth potential-1Market share

RatingIndustry Strength (IS)RatingCompetitive Advantage (CA)

-29/9= -3.2221/5= 4.2Total

-3Risk involved in business

-2Price elasticity of demandKey- IS & FS , 1 worst & 6 the best

-6Ease of exit from the marketKey- ES & CA, -1best & -6 the worst

-2Competitive pressure

-2

Barriers to entry into

market4Cash flow

-5Price range of competing products5Working capital

-3Demand variability4Liquidity

-4Rate of inflation3Leverage

-2Technological change5Return on investment

RatingEnvironmental Stability (ES)RatingFinancial Strength (FS)

EXTERNAL STRATEGIC POSITIONINTERNAL STRATEGIC POSITION

SPACE Matrix

15



0.51.51.0

1.0

2.52.0

1.5

0.5

0.5

1.0

1.01.5

1.5

2.0

2, 0.98

CompetitiveDefensive

Conservative Aggressive

BSP is financially strong and is beginning to achieve a major competitiveadvantage in pursuing aggressive strategy in a fast growing environment

ISCA

ES

FS

0.5

SPACE Matrix

7. BUSINESS STRATEGY

Developing business strategies is always a challenge. Today strategies are like moving targets

as businesses and markets continually change.

The word “South Pacific” in the bank’s name poses a big challenge for the management. In

other words BSP must live up to it’s “name” by doing more regionally, whilst remaining loyal

to its customers and shareholders. In the 2005 Annual Report Mr. Garth Mcllwain - Managing

Director’s revealed the Board’s commitment to see BSP become a “truly great pacific bank”.

The “Pacific Bank” is what we think the BSP should strive for. As discussed earlier, BSP needs

to scan the macro-environment, identify its key competitors, look at its internal strengths and

weaknesses and external opportunities and threats, position itself realistically through

appropriate strategic analysis and develop medium and long term objectives to achieve the goalof increasing its market share in the region.

16



The above indicates that strategy 3, to pursue geographical expansion is a more attractive strategy when

compared to strategies 1 & 2

8. Vision and Mission statements

BSP states it has a “simple” vision – A bank with a powerful customer focus and an

understanding of shareholder value.

Whilst the bank does not have a mission statement, its strategy is also “simple”- We

segment our approach to the market based on customer groups who deliver value.

BSP’s current vision is appropriate given the nature and composition of its business. It

has placed priority on its customers and shareholders. However there is an imbalance in

terms of business image and market positioning to indicate what BSP wants to become

in the future. After all, the vision statement answers the question: What does an

organisation want to become? In this regard and in light of current developments as

discussed earlier in the paper, we propose a new vision for BSP as follows:

New Vision:

To be a leader in the banking and financing industry with a powerful customer focus

and an understanding of shareholder value.

17



Similarly, the bank’s strategy is too “simple” and lacks strong business power and

direction, except to search market segments with customers that deliver value. We

believe ‘more meat’ is needed in the context of a mission statement to set the pace for

BSP. A mission statement is normally at the fore-front, on the walls and stairways

readily visible to the public. It identifies the scope of the firm’s operations and describes

the values and priorities of the organisation and in overall charts the future direction of

the organisation. BSP is already expanding operations into the Pacific region (with Niue

office operational in 2004) and Fiji and Solomon Islands soon. These are major business

strategies and missions that BSP need to inform its customers, shareholders and the

general public through a well developed mission statement. There are nine essential

components necessary for an effective mission. We present below a new mission

statement for BSP which includes the important nine components as highlighted below:

New Mission Statement:

At the Bank South Pacific, we strive to achieve more for our customers and

shareholders. As a leading bank in Papua New Guinea we are committed to providing

the best banking and financing services to our customers in Papua New Guinea and

the Pacific region. We will strive to excel in providing superior services with the

highest professional standards and acceptable practices to satisfy the banking demands

in the Pacific market . We will vigorously pursue a world class banking platform to

foster a climate which encourages innovative on-line service delivery through high-tech

electronic technology and banking systems. Our willing staff and prudent management

are well trained to ensure long-term customer and shareholder interests are protected

through sustainable business growth and profitability. Our philosophy is about

simplicity - to maintain simple visionary approach to our customers with a friendly

service. We believe our strength is in our natural ability and knowledge of the

environment we operate in and many, many years of relevant experience which gives us

the confidence and competitive advantage in better serving our customers. In delivering

our services we are always mindful of our standing and image in public and also of our

corporative obligations and social responsibilities to our employees and the public at

large.

a. Business Objectives

The long-term business objectives of the Bank South Pacific are summarised below:

18



To expand business aggressively and offer above average returns to shareholders

To become the leading bank in the Pacific.

b. Financial Objectives

The financial objectives of BSP for the next 2-3 years are:

To complete financial transactions for acquisition of the NBSI and HBF 7 as an

immediate task

To consolidate and drive for profit in the new market segments

Maintain financial organic growth in PNG

c. Target Markets

Following the acquisition of the NBSI and HBF, BSP will consolidate and pursue

profits before considering further markets in the region. The current trends and industry

growth offers an ideal opportunity for BSP. In line with the bank’s objectives and

business strategies it is recommended that BSP should target the following markets:

PNG market

BSP has emphasized the need to maintain local organic growth as an immediate

consideration. BSP should increase coverage with its strong capital base,

estimated at K1.2 Million, and take advantage of local towns involved in

mineral, oil, gas and similar development projects in addition to those it is yet to

cover. One of these areas is the big Bougainville Island where BSP has only one bank operating in Buka town.

Regional market

BSP’s establishment on Solomon Islands and Fiji has set the scene for more

business opportunities in the region. Using the current trend and growth as

guide, the following market segments were considered as possible prospects for BSP – Vanuatu, Samoa and Tonga. These PIC’s are mainly dominated by ANZ

7 National Bank of Solomon Island and Habib Bank of Fiji

19



and Westpac banks. The smaller distant island countries mainly use the Bank of

Hawaii and the Bank of Guam.

International

The international markets will always be a big challenge but not an impossible

task.

d. Key Strategies

The key strategies were developed in light of the new vision and mission statements,

objectives and linkages to BSP’s position in the industry market as discussed above. As

part of its strategy for the next 3-4 years, BSP will:

Concentrate on organic growth in PNG

Consolidate business in NBSI and HBF and drive for profit

Develop a Regional Market Expansion Plan (RMEP)

Consider acquisitions

Grand Strategy Matrix

BSP

1. Market development2. Market Penetration3. Product development

4. Forward integration

5. Backward integration6. Horizontal integration

7. Related Diversification

The GSM as shown above has positioned BSP in the rapid market growth and

strong competition position.

20



Internal – External (IE) Matrix

1.0

3.0

4.0

3.0

2.0

1.02.0

Internal-External (IE) Matrix – BSP by Division Contributions

Strong

3 - 4

High

3 - 4

Weak

1- 1.99

Average

2 – 2.99

High

2 – 2.99

Low

1 – 1.99

20%

20%

10%

20%10%

10%

10%

Grow & build

Harvest & Divest H o

l d & M a

i n t a i n

The IE Matrix depicts contributions by departments in terms of its overall strong performance.

The Corporate and International Section contributed 20% to the overall performance and needs

to grown & built upon for further high performances.

21



9. FINANCIALS

9.1 Likely forecast

Below is a likely forecast for BSP based on past six-year annual average growth rate:8

Table 1 – Likely forecast (PNGK ‘Million)

In forecasting, there were few assumptions made in the absence of reliable information.

These include acquisition costs, staff movements, proposed restructuring andoperational costs. The financial projections do not include costs for future acquisitions

although these are indicated in the implementation schedule (after 2008). The cost

assumptions and implementation schedule are further discussed in detail in Section 5 of

the report.

9.2 Worst case scenario - “What if”

The current unrest in Solomon Islands (RAMSI and civil tensions) and Fiji (military

threats) pose high risks for businesses. BSP’s new operations in the two countries will

be affected. The worst-case scenario predictions as shown below are based on the

assumption that tensions would continue to critical levels forcing the closure of both

operations in 2007. It is also assumed that BSP has acquired the two banks through

direct outright purchase.

Table 2 - Worst case scenario predictions (PNGK ‘Million)

BSP may risk losing up to K27 million (F$14 Million) in income in the first half of

2007 in this situation. Furthermore, BSP will be deprived of opportunities to invest inearly profits. It will also encounter delays in its plans for future expansions as well as

8 BSP Annual Report 2005

22

2006 2007 2008 2009 2010

Income 306 414 476 547 629Expenditure (231) (288) (313) (344) (378)Total Assets 3,668 8,557 10,630 13,206 16,406

2006 2007 2008 2009 2010

Income 306 360 414 476 547Expenditure (231) (263) (318) (350) (385)Total Assets 3,668 8,557 10,630 13,206 16,406



disruptions to posting and training opportunities for its staff. Most importantly, returns

on asset and to shareholders will fall below expectations.

In actual fact, past records indicate that the National Bank (NBSI) closed in 2003 due to

civil unrest following the failure of a pyramid investment scheme. Other major banks

including ANZ, Westpac, and the central bank also closed down.9

BSP’s strategy to focus on organic growth is able to sustain overall operations in such

situations.

9.3 Summary Matrix

Liquidation

Divestiture

Retrenchment

Unrelated Diversification

4BSPBSPBSPBSPRelated Diversification

5BSPBSPBSPBSPBSPProduct Development

4BSPBSPBSPBSPMarket Development

4BSPBSPBSPBSPMarket Penetration

5BSPBSPBSPBSPBSPHorizontal Integration

5BSPBSPBSPBSPBSPBackward Integration

5BSPBSPBSPBSPBSPForward Integration

COUNTGSMSPACEIEBCGSWOTAlternative Strategies

Matching - Summary Matrix

The summary matrix highlights some of the strategies that BSP needs to pursue in its

efforts for expansion and growth.

10. BALANCED SCORECARD

9 http://en.wikipedia.org/wiki/National_Bank_of_Solomon_Islands

23

http://en.wikipedia.org/wiki/National_Bank_of_Solomon_Islands





BALANCED SCORECARD FOR BANK OF SOUTH PACIFIC

• Chief Financial

Officer

• QualityManagement

• 2% or lessper yr

• 70% per yr

• Loandelinquencies

• Efficiency ratio

• No. of badloans made

• Overheadexpenses

Share Holder

• HRM

Manager

• Cycle time

optimizationprogramme

• > 25minutes/client

• Queuing time• Fast services

• Fast onturnaround

Internal Business

Process

• HRMManager

• Newproduct

Manager

• Crew training• Product

analysis

• Yr 1 – 70%• Yr 2- 90%• Yr 3 – 100%

• % Crewtrained

• % Sales

• Competence• Product focus

Learning & growth

• ClientServices

Manager• HMR

Manager

• Customerloyalty

programme• Quality

Management

• 90% changeper yr

• No. of productoffering peryr

• 90% per yr• 98%

satisfaction

• No. of customers

• % sales of new product

• Sales volume

• Customersurvey

• Morecustomers

• New product• Competitive

Product offering

• Satisfaction

Customer

• Chief FinancialOfficer

• Optimize• Standardize

products

• 20% per year• 20% per year• 5% per year

• Revenuegrowth

• Market value• Unit Cost

• Growth• Profitability• Cost

leadership

Financial

PRIMARY

RESPONSIBILITYINITIATIVESTARGETSMEASURESOBJECTIVESTHEME: Operating

Efficiency

This balanced scorecard can be used as a benchmark for the business excellence in terms of the

suggested strategy.

11. CONTROLS

12.1 Implementation

The implementation schedule for 2006-2008 and plans up to 2010 is shown below:

2006 2007 2008 2009 2010

Local (PNG)Regional

Fiji

Solomon IslandsVanuatu

SamoaTonga

International

Figure 3 - Implementation Schedule 2006 - 2008

The year 2007 will be challenging for BSP as operations commence in Fiji and Solomon

Islands and business expands in PNG. Considering profit growth in previous years BSP

is able to recover its investment in reasonable time. The implementation schedule

encourages further expansions based on the new vision and strategies of the bank. BSP

may consider banking prospects in Vanuatu, Samoa and Tonga.

24



12.2 Organisation structure

BSP’s current organisation structure is shown below:

Figure 4 - Organisation Structure

BSP uses a flat organisational structure with limited levels which is line with its current

vision of customer focus and shareholder value. The limited levels of management

allow “Executives with responsibility for customers and value report directly to the

Managing Director’. The structure consists of seven strategic business units (SBU’s)

each headed by a General Manager.

Whilst the current structure has succeeded it has been viewed as mainly localized with

focus on organic growth. The expansion of BSP’s banking operations to Solomon

Islands and Fiji and possibly other markets in the region will increasingly impact on the

way BSP conducts business. This calls for appropriate changes including the current

structure. A change in the structure is required in the operations area as regional and

international operations emerge influenced by competition and profitability

opportunities. It is recommended that BSP include a SBU called Operations -

International. The section is to be headed by a General Manager tasked with the

responsibility of managing and reporting directly to the Managing Director on all

regional and international matters. The current Operations SBU will continue to oversee

national operations.

25

Managing

Director

Retail

Bank

Corporate

and

International

Paramount

Banking

Credit

&

Risk

Human

Resources

Operations

Finance

&

Planning



A new structure is shown in Figure 5 below with the changes highlighted. The changes

continue to support the flat structure in line with the new vision and objectives of the

bank as discussed earlier in the report.

“Improved” Organisational Structure (2006)

Source: BSP Annual

Report 2005

Domestic

GM

PNGPNG

GM GM GM

International

GM COO/GM CFOGM

NiueNiue

Solomon IslandsSolomon Islands

FijiFiji

Figure 5 – New Organisational Structure

12.3 Cost Implications

With every change in business strategies there are associated cost implications.

This report has made few assumptions and estimates where information is

lacking based on experience and discussions with fellow Pacific students

participating in the MBA program at the University of the South Pacific. The

major costs identified below relate to the Likely scenario forecast as shown in

Table 1. These include:

Acquisition costs – NBSI and HBF – K3.8 million

K0.2 million in costs for additional local establishments.

Operational costs plus staff movements – 10% of costs

15% growth in customer number

Remuneration package for new GM – K100,000 per annum

Expenses for setting up and staffing – K 150,000

26



K3.8 Million for the acquisitions in Solomon Islands and Fiji

Asset value increases in direct proportion to acquisitions/expansion.

13. RECOMMENDATIONS

BSP’s strong financial performance and prudent management will enable it to make further investments in the coming years for the benefit of its shareholders, customers, staff andcommunities throughout the Pacific. It is recommended that BSP’s investment and growthstrategy for the Pacific should include:

Concentrate on organic growth in PNGImproving infrastructure and service levels for customers by developing a centre for excellence to support BSP’s business and creating more jobs in the Pacific.

Consolidate business in NBSI and HBF and drive for profit

Expanding regional banking to bring basic banking services to more Pacific Islanders.

Develop a Regional Market Expansion Plan (RMEP)

Continued focus on expanding BSP’s business in the Pacific by further investment inimproving branches and looking for new opportunities in new countries.

• The Balanced Scorecard as presented can be used as a benchmark for achieveing

high level performance.

14 CONCLUSIONS

BSP is already making its mark as a Pacific’s leading bank and has now focused on taking thisto the next level for the benefit of its customers and the community. That is the core of anexciting agenda for BSP in the Pacific. BSP is the leading bank and company in the SouthPacific employing over 1900 people with 40 branches in 2 countries including Papua NewGuinea, Niue, and currently expanding to include Solomon Islands and Fiji. BSP has potentialto further develop operations in the region and beyond.

This report has identified few strategies based on the various strategic management tools that

can be considered by the management of BSP in its endeavors to pursue its objectives and long-

term business goals.

Bank South Pacific - Giaman Lain

Documents

Transcript of Bank South Pacific - Giaman Lain