BAD GOVERNMENT LOANS MADE PNGBC OBSOLETE, BSP ON THE VERGE OF REPEATING HISTORY
by MICHAEL J PASSINGAN
Bank South Pacific is increasingly propping up the corrupt and financially compromised O’Neill Regime, exposing itself to higher and higher risk and putting itself outside its prudential guidelines.
Prime Minister Peter O’Neill, who as head of PNG Banking Corporation drove the bank into bankruptcy, forcing its merger with BSP, has been pressuring BSP to lend more and more money to his Government and his failing SOEs.
Since Mr O’Neill took Government midway through 2011, BSP’s lending to the Government and Public Authorities has exploded.
At the same time corruption, waste and mismanagement within Government – especially in SOEs under Minister Ben Micah – reached record levels. And it continues to increase.
In 2010 BSP;’s accounts showed it had a negligible K116 million in loans to Government and Public Authorities, or 3% of its portfolio.
As at 31 December 2014 (the latest full-year BSP accounts available) the bank had K1.12 billion in loans to Government and Public Authorities, or 17% of its portfolio.
Loans to Government and Public Authorities could be between K2 billion and K3 billion by the end of this year, with loans of K450 million to NPCP (now Kumul Petroleum) and K1.1 billion to Kumul Consolidated Holdings (formerly IPBC) having been announced.
More worrying is the fact that by supplying Mr O’Neill with more money to steal and waste, BSP has breached its prudential limits.
The Bank of Papua New Guinea stipulates that total exposure to any one corporate group may not exceed 40% of a bank’s capital base.
In 2010 BSP’s exposure to Government and Public Authorities was 9.2%. At the end of 2014 it was 68.2%.
By the end of this year, the ratio could be as high as 100% of BSP’s prudential capital base (assuming no capital expansion).
The issue is highly sensitive, and BSP has recently engaged in what appears to be some trickery to try to hide its true exposure to the O’Neill Regime.
The bank has been trying to fool shareholders and the regulatory authorities by playing games with its published loan portfolio sectoral allocations.
On February 18, the sectoral allocation to Government and Public Authorities for the December 2015 quarter was shown in BSP public statements as being K1.2 billion.
Suddenly, without any explanation, a BSP public statement on March 10 showed that the bank had an exposure of K442 million to Government and Public Authorities for the December 2015 quarter.
Somehow, K747 million in lending to the sector for the December 2015 quarter had disappeared
And equally mysteriously, lending to the Transport and Communications sector for the December 2015 quarter rose K906 million between February 18 and March 10.
These are highly suspicious transfers and they must be investigated by the Bank of Papua New Guinea, the Port Moresby Stock Exchange and the RPNGC financial crimes unit.
BSP’s difficulty is that it cannot argue that the Government and Public Authorities is not one group – the entire sector is controlled by one man – the corrupt Prime Minister through National Executive Council.
And any argument that SOEs are independent businesses governed by independent competent and honest boards is nonsense. SOEs are infamous for corruption, waste and mismanagement. They have become personal piggy banks for the Prime Minister and his cronies.
The legislation setting up Kumul Consolidated Holdings and its subsidiaries also removes any doubt that SOEs and the Government are one and the same.
For BSP, the risks inherent in increased lending to a grossly corrupt Government and an incompetent and wasteful administration are staggering.
A total collapse of Government finances – which is not out of the question – could have devastating effects on BSP. A big question therefore is the security it has for its government lending.
But it is impossible to judge the worth of BSP’s security because of the absence of transparency and accountability of SOEs. And the real-world worth of SOEs themselves cannot be estimated for the same reason.
The former Minister for Public Enterprises, Ben Micah, recently made the ridiculous claim that SOEs are worth K20 billion.
In fact all SOEs are virtually bankrupt and the Prime Minister is hiding the fact by refusing to allow them to publish their financial results or to have them audited.
SOEs no longer publish their audited accounts under the O’Neill regime, preventing the true extent of corruption, waste and mismanagement to be calculated.
Some SOEs point-blank refuse to submit their accounts for auditing despite the fact that they are legally required to do so.
For example Ports PNG, to which BSP recently led a loan of K1.1 billion for the proposed Port Moresby port relocation project, refuses to submit accounts to the Auditor-General. (The head of Ports PNG, Stanley Alphonse, is the Prime Minister’s cousin-brother – another of a long list of nepotistic appointments made by the Prime Minister through NEC).
The Auditor-General stated in his 2013 report that 62 government entities had not submitted their 2013 financial statements to be audited and overall some 54 financial statements for 2012 and prior years had not been submitted.
Those that did not submit their accounts for audit included the Mineral Resources Authority, MRDC, NPCP (now Kumul Petroleum) and Water PNG.
Of the 101 audits completed, only 14 were for the 2013 year. The Auditor-General reports for the 2014 and 2015 years are still not available, raising fears that O’Neill Government corruption, waste and mismanagement is getting worse.
The Auditor-General‘s 2013 report makes it clear that not one SOE is compliant with national legislation, including the Public Finances (Management) Act, the Audit Act, the Companies Act, the IPBC (now Kumul Consolidated Holdings) Act, their own Acts of Parliament and the Salaries and Conditions Monitoring Committee Act, amongst others.
Furthermore, the IPBC (Kumul Consolidated Holdings) website, and the web sites of individual SOEs, contain no annual reports and no information on their finances.
From the above, it is clear that BSP is lending to highly corrupt and highly risky enterprises – precisely what the BoPNG prudential regulations are intended to prevent.
Furthermore, BSP lending is adding to the O’Neill Government’s huge debt repayment burden, which is a primary factor in the financial crisis facing Papua New Guinea.
BSP’s lending to Government and Public Authorities is likely to increase, and the Government says it is still committed to a $US1 billion sovereign bond issue. Informed sources also say that China has agreed to a new ExIm Bank loan, of up to K10 billion.
Papua New Guinea’s debt repayment burden has already risen 23% from K1.13 billion in 2015 to K1.4 billion in 2016. It looks like it is going to get a whole lot worse – possibly more than K3 billion a year.
Prime Minister O’Neill is the master of debt and deception. – he is hiding debt here, there and everywhere.
So it is no surprise that SOE accounts are secret – it is possible that assets are mortgaged multiple times, which should give BSP even more cause for caution.
There is even speculation that the Prime Minister would love BSP to fail – that he could re-nationalise it and bring it and all its assets under his personal control.
Just as PNGBC was during the Skate Government, when O’Neill as Finance Pacific Chairman wrote off loans to his cronies, stole assets and brought the bank to its knees.