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Papua New Guinea Success Story - Privatisation of PNGBC

PRIVATISATION OF PNGBC – A PAPUA NEW GUINEAN SUCCESS STORY
Over four years has now passed since the merger of PNGBC with Bank South Pacific Limited. With the privatisation of PNGBC came many questions and concerns and in a potpourri of emotion for many it became hard to separate fact from fiction. Clearly at the four-year mark, the Bank South Pacific has emerged as the dominant player in the financial sector, beyond the expectations set when the privatisation process began. Past The PNGBC was saved from financial collapse by Central Bank intervention in the year 2000 with the installation of a professional executive, led by one of PNG’s leading business identities, Garth McIlwain. Before his appointment, a pattern emerges of political interference and significant reductions in capital in the years 1998 and 1999. The new team at the time quickly identified doubtful debt provision requirements in excess of K145 million of which an analysis of the loans suggested a large portion belonging to politicians and or people associated with the political elite at the time.
By effective debt provisioning, the PNGBC’s capital adequacy had been reduced to below zero (-2%) and the Bank was insolvent. The root cause lay in politicization of the Board and the senior management. More worryingly if the Bank had collapsed it would have brought down the entire financial system and reputation of the country. Clearly the long-term solution could not lie in the recapitalisation of the Bank while the same inherently flawed ownership structure remained. To do so would be to offer a temporary fix and perpetuate future cycles of recapitalisation and collapse. While the Bank remained in State hands it would always be open at some future stage to
political interference and potential mal administration. The solution deemed
appropriate was privatisation. Privatisation Privatisation in a global context not new. Most banks, airlines and telecommunications companies in democratic countries are privately owned for a good reason. History has shown that Governments are poor managers when it comes to running businesses. The preferred role for the State is managing the regulatory
environment that allow businesses to operate, preferably in a competitive
environment, not actually running the businesses themselves. The Morauta privatisation program instigated in 2001 rested on the following fundamental objectives.
1. Removal of political interference
2. Financial sector stability
3. Service delivery.

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