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PNG’s banking regulator raises stability questions

Allegations, counter-claims and mistrust have broken out within PNG’s banking regulator, resulting in the potential for a massive loss of confidence in the nation’s banking system.

Papua New Guinea’s biggest bank, Bank South Pacific (BSP) Financial Group Ltd, has recently been the centre of argument between the Opposition and Government after the bank has been subjected to regulatory action over allegedly failing to comply with anti-money laundering regulation requirements.

This was after the Bank of PNG, the country’s banking regulator, through its Financial Analysis and Supervision Unit (FASU), warned BSP, who has branches in several Pacific island countries, to remove and replace certain management executive staff and engage an external auditor to determine the full extent of the issues.

“The nature of the BSP’s non-compliance is serious enough for FASU to have issued an infringement notice, however, FASU has chosen to apply a formal warning instead, making this the first occasion of regulatory action undertaken by FASU against BSP, FASU director Benny Popoitai said in a media statement.

However in a remarkable claim, Bank of PNG Governor Loi Bakani said FASU’s statement was done independently.

“The Bank of PNG disassociates itself from the statement made by FASU. The use of the Bank logo was not authorised and the statement was not approved by the Bank of PNG. FASU should have consulted the Bank of PNG on the statement before releasing it,” Mr Bakani said.

He said the Bank of PNG was concerned about the impact of FASU’s statement on BSP and the stability of the financial system.

Mr Bakani reassured the public that the banking system, including BSP, was sound and met all regulatory requirements.

Governor Loi Bakani. Photo: Twitter

Prime Minister James Marape has also rushed to BSP’s defence, saying the bank had always conducted itself well.

“BSP watches against money laundering, so I don’t question BSP’s credibility,” Mr Marape said.

“They (BSP) have regulations.

“I have asked FASU and the Bank of PNG for the report by FASU and I have also asked BSP to come and meet with me to see what has been reported.”

Opposition Leader Beldan Namah has slammed Mr Bakani and Mr Marape’s statements, saying he is shocked to see Mr Marape come out in defence of BSP.

“The alleged breaches are detailed as are the proposed penalties available under the law and for Marape to go to BSP’s defence were irresponsible,” Mr Namah said.

He said BSP was PNG’s pride but its reputation must be clean.

“If it breaches the country’s financial and monetary guidelines and regulations, then those officers involved, including the top management and the board must be held to account,” Mr Namah said.

Opposition leader Beldan Namah. Photo: Twitter

BSP’s Chief Executive Officer Robin Fleming declined to comment on the matter; however, Chairman Sir Kostas Constantinou said BSP had always complied with anti-money laundering and counterterrorist obligations.

BSP’s operations span PNG, the Solomon Islands, Tonga, Samoa, Fiji, the Cook Islands and Cambodia. It also has correspondent banking relationships with Bank of America and Wells Fargo.

The group is chaired by Kostas Constantinou, one of PNG’s wealthiest business figures, who owns The Airways Hotel in Port Moresby along with a string of other property and construction holdings.

The bank, which made a profit of 806 million kina ($292 million) in 2020, did not raise any money as part of its ASX listing, although it plans to do so in the future.

In documents lodged with the ASX, BSP said it faced “elevated corruption risk” as it operated in PNG and despite government efforts to tighten regulation and oversight, it said “the actual and perceived risk of corruption, bribery and money laundering remains material.”

6 Comments
  1. John 10 months ago
    Reply

    BSP still Nambawan bank. Maybe an oversight but should get over as systems get fact checked n tightened up.

  2. Michael James Varapik 10 months ago
    Reply

    Let FASU do its job. Obviously FASU has found compelling reasons to warrant the actions it took and comments it made. The truth hurts doesn’t it.
    And now it is sad that the Governor has distanced himself from the position FASU has taken on the matter. I urge FASU Director Benny Popoitai to remain resolute and firm for to do otherwise would be to compromise his competence and integrity.

  3. Peter Manus Anda 10 months ago
    Reply

    High ranking politicians & beauracrats in PNG have always meddled in investigations into scandals & allegations against PNG’s banking & financial sector. That is a fact
    For Loi Bakani to distance himself from the FASU is totally incompetent on his part as the Governor of the BPNG.
    I’d rather believe in the Australians independent assessment of BSP’s non-compliance issues.
    You cannot trust what’s coming out of the mouths of our very own politicians & beauracrats.

  4. Yorkson James 10 months ago
    Reply

    POLITICIANS DON’T JUMP IN QUICKLY AND DEFEND.
    LET THE BANK OF PNG AND BSP SORT THE MATTER OUT FIRST

  5. Jepenaiah Kenoh 10 months ago
    Reply

    This piece of article is “bulls eye shot”. Loi Bakani must be sacked immediately. Have Mr. Popoitai appointed to the post.

    The PMJM hasn’t made any major economic reform Structurally in the banking and financial sector as yet.

    The incident is a wake up call the Government now to make those necessary changes.

    Politician should be out of this investigation and let the FASU carry on with its work. Enough of compromising with the independent body. All? our systems are becoming weak because of compromising with the politician. The independent body should operate on its own.

  6. Xavier Kakii 10 months ago
    Reply

    How we view ourselves as a nation with other countries is very very important. BSP is PNG’s pride. You shut down BSP, you shut down the country. Spoiling the company that is nationally owned, spread across the Pacific and holds up to 70% share of the current bank market share in PNG was something that would have been avoided if we were patriotic enough.

    Yumi PNG yah. Yumi mas sanap wantem.

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