BSP retail banking makes ‘zero’ profit

By MOHAMMAD BASHIR,5 August 2009

BANK South Pacific’s retail banking operations currently make “zero’ profit, managing director Ian Clyne revealed yesterday.
He said only six of the bank’s 35 branches were profitable.
Mr Clyne, who took over as chief executive of PNG’s largest commercial bank late last year, was responding to public criticism of “new” bank fees.
He said BSP had not undertaken any comprehensive fee review and increase for more than two years, including the majority of its service fees, despite a significant increase in operational and security costs over this period.
The current fee structure was similar to the other two commercial banks, Westpac Bank and ANZ Banking Group.
“BSP’s Retail Banking operations make basically zero profit,” Mr Clyne said.
“The costs of maintaining 35 branches around PNG, and servicing over 500,000 retail customers, many of whom keep only small balances, are extremely expensive.
“Only six out of 35 branches actually make a profit.”
He said that despite this, BSP continued to maintain these branches and was rolling out new ATMs, SMS services, and EFTPOS machines in retail stores, “all aimed at trying to make banking easier and more assessable to as many Papua New Guineans as possible”.
“The actual cost of using ATM’s or EFTPOS to withdraw cash is actually very low – 20 or 50 toea. People simply need to have a Kundu card to access their accounts and do not need to go into BSP branches to do most of their banking requirements,” Mr Clyne said.
“If you go into a branch and have teller services, it is much more costly to BSP and therefore a higher fee is charged.
“How many businesses do you know are willing to maintain loss making services? And even expand these services?
Mr Clyne added that the cost of transporting money around PNG was very high and with security risks increasing, the cost of armed escorts and the risks to bank staff were increasing.
“Security issues can potentially seriously impact whether a branch remains open or not. Communities that do not have banking services unfortunately suffer,” he said.
Mr Clyne said BSP had a three to five year strategy to double the number of retail customers to one million.
He said the cost of building and outfitting a branch was about K2 million, which many of the towns and regions “simply could not financially support or justify this type of investment”.
“BSP believes that by increasing the number of ATMs (150 plus), EFTPOS machines (2000 plus) and SMS Banking services, supported by a better agency network, more people will eventually get access to banking services,” Mr Clyne said.
“On the other hand no one can expect banking or any other service for free. The fee must reflect the true costs of providing these services.”