After gaining a foothold in Fiji with acquisition of the Colonial Fiji Group in 2009, Bank of South Pacific (BSP) has established itself as the leading retail bank with the fastest growing market share of the business and international banking sector. Country Manager Kevin McCarthy explains that the bank’s deep roots and extensive network in the region make it the natural choice for any business looking to enter the Fijian market as a base for regional commerce and trade.
According to the AG, Fiji is entering a “Golden Age”, with a growth rate exceeding 4% for the past three years, something which hasn’t happened since the 1970s. However, in the years immediately following the coup Fiji experienced anaemic growth. What do you identify as the foundations of this impressive and ongoing growth spurt in Fiji?
Political stability in any country is really important for sustained economic growth. Post 2006 and the coup, we had some years that weren’t great. Tourism was particularly badly affected at times.
However, we had a timeframe for elections and for returning to democracy and that timeframe has been adhered to. As a result, we’ve seen an increasing level of confidence in the business sector, which creates stability and jobs. We have also seen an increasing level of confidence from consumers.
The election of 2014 was monitored by international observers and it was considered to be free, fair and transparent. Now we have an elected government in place that is pursuing the same business-friendly policies as before, with a democratic mandate.
We’ve seen substantial changes in taxation, with the base tax rate for personal and companies going down to 20%, and this has made things very buoyant. To some extent, a lot of this has been led by consumer demand, due to the tax reforms that were made. People had more money in their pockets and they started spending, and businesses reacted very quickly to that. They saw those new opportunities and there’s been a lot of expansion going on. Domestically, the shopping facilities that are here now are substantially better than they were in the past. Large shopping malls are being built. A lot of projects are going on at the moment, both in retail and in the tourism sector, where new resorts are being built and existing resorts renovated.
The level of demand is so high now that the country is actually having trouble keeping up with it. There have been labor shortages in certain skilled areas of construction, and that’s going to be a challenge for the government to deal with. We have a lot of accountants and lawyers but we need more skilled tradesmen and women. The continued investment in infrastructure will require an emphasis on training trades people.
The Reserve Bank of Fiji reports that during the first half of 2015 new lending for investment soared by 82.1%, while new lending for consumption increased by 14.4%. In which sectors of the economy do you see the most potential for growth going into 2016?
The growth is still there. We live in a country where people have a propensity to borrow money if they want something today. One of our challenges is that we don’t have a strong savings culture, generally speaking, and so that fuels a lot of the demand on the consumer side.
On the business side, there is a lot of investment taking place. There’s a lot of straightforward private sector investment going on, but the government-led investment in roads, for instance, is opening up opportunities for contractors and suppliers. It is very broad based growth.
When we met Minister Koya, he declared several times that Fiji is ‘open for business’ and said Fiji is the ideal base for investors who want to access the wider Pacific market of nearly 11 million people. How do you assess Fiji’s potential as a trade and investment hub in the South Pacific?
Foreign direct investment is important for us going forward, but a lot of the investment that’s happened to date has been local investment. It is led by people here with already established businesses. To some extent they’re the best guys to make things happen because they already know the market and they know how to get things done. They’re not scared off by events.
But we do need more foreign direct investment. We need it not just for the financial injection, but also to bring expertise and best practices to Fiji.
This year BSP has so far acquired Westpac operations in five other Pacific countries. How does this impact on BSP’s positioning as the bank of choice for potential corporate clients looking to do business in the South Pacific?
It was a great opportunity for BSP to acquire these operations. BSP has been looking to expand its presence in the Pacific since as far back as 2004 when we made our first acquisition. For us, the opportunity to pick up Westpac operations in five countries in one transaction could not be missed.
Fiji is the hub of the Pacific. Fiji’s not working towards this aim; it already is the hub of the Pacific both geographically and also from an infrastructure point of view. There are a lot of exports going out of Fiji into many of the neighboring Pacific countries. Having those other businesses around the Pacific really cements BSP’s position as the regional bank of choice.
For our customers in Fiji, they can now be safe in the knowledge that we are on the ground in these other locations and can be there to assist them with the customers at the other end and take care of both the trade and financing of their business.
The USA is the largest source of FDI outflows in the world. Have you noticed increased interest from the US in opportunities here in Fiji?
When you talk about the 11 million people, it’s very concentrated. Papua New Guinea contributes 7 million to this. But it’s still a very strong market and we’re seeing some good examples of success. Fiji Water is a great example of an investor that creates a great profile for Fiji and offers good returns for the country.
BSP is listed on the PNG stock exchange, but you also have BSP Convertible Notes listed here in Suva on the SPSE. We recently interviewed Dr Nur Bano Ali, who lamented that there were currently insufficient listings to satisfy demand from potential investors. However, she was also optimistic about the impact of raft of incentives available for listed companies. How do you view the potential of the SPSE to attract more interest from both investors and companies looking to list in 2016?
Listing a company is a big step because the disclosure requirements that come with listing can be quite large for many businesses. There are many businesses here that could be great listed companies but they would need to adopt a far more transparent and open approach, as many are closed family businesses.
Some people are hesitant to take that step. We’ve got the situation right in terms of the tax incentives. The fact that you would only pay 10% tax on a listed company is a significant incentive going forward.
I know there’s talk about maybe also having a secondary listings board with less stringent requirements. That’s in the early stages of discussion at the moment. We are about to see a big listing which you may or may not have heard of: the Vision Group is coming to the market with a listing. There’s no doubt that the appetite for investment in the stock market is there but clearly there’s more demand than supply at the moment.
The government has a great opportunity now with the privatization program they’re pursuing to list some state owned enterprises. We’re a little bit disappointed that the ports divestment happened without a listing. But we did get a commitment from the Attorney General at a post budget forum that they will look at listing some other government companies as they divest further shares.
In Fiji, BSP has fastest growing market share of the business and international banking sector. Fiji has a very competitive banking sector for a country of its size. Quite simply, when corporates are looking for a banking partner in Fiji, why should they choose BSP over your competitors?
Firstly, you’re definitely right. Six banks in a country this size is a large amount, so it’s a hugely competitive market place.
When you choose BSP you get a bank that has a full range of products and services that are equal or better to those of Westpac and ANZ. You get a bank full of experienced personnel who have been on the ground in the region for a number of years. All our people are long-term Pacific people, whether they be Fijians or whether they be from other countries in the region. We only have two expatriates in management positions here in Fiji. All the rest of our people are Fijians.
We offer stability in our relationship with our customers. You also get a bank that’s more involved in the community. Because our roots are in the Pacific, we give back to the communities that we’re involved in.
We have a very strong program of community projects that we’ve been doing since we entered the market place here. All our branches and departments get a budget each year to do a community project that must not be a case of just handing out a donation. It’s a project that’s got to involve a partnership between the branch and the community. Both the branch staff and the community have to work on it, and they have to be committed to it. So there’s a lot of sweat equity that goes into it as well. People give up their weekends to go and work on whatever the project might be.
Is that a policy that was introduced here by you personally here at BSP Fiji?
This was introduced successfully into Papua New Guinea and we then brought that here to Fiji. It works very well for us.
In Papua New Guinea it’s even more important there, from a law and order point of view, to be a very strong part of the community so you get that community support, but we still want that same enthusiasm to Fiji. In 2015 we’ve done 10 community projects. We’ve got another four or five that didn’t quite get finished but the major projects really benefit the community.
As an extension of this perhaps, there is a significant section of the population that’s still unbanked. A recent RBF survey showed that 27% of the population has no access to financial services at all. And at the same time there’s a very vibrant micro-enterprise sector of the economy. How are you approaching the task of bringing these people into the formal banking sector?
I think Fiji bats well above its weight in financial inclusion. Let’s turn it around and say three out of every four people do have a bank account. In Pacific terms, even in global terms, this is very high. I’m actually on the board of the National Financial Inclusion Task Force. We’ve fulfilled the terms of our first five-year strategy plan and we’re now just setting up the new 5-year strategy plan going forward.
In some ways, reaching this final 25% of people who are unbanked at the moment is probably the hardest. In reality you’re never going to get all those people. There’s people living in subsistence areas and you’ve got households where there might be a number of people in the household, but there might only be one person involved in finance. But we certainly still want to try.
It’s interesting that every bank in Fiji has used a different approach to reach those people. At BSP we have a combination. We have an agency arrangement with Post Fiji. There are approximately 46 agencies around Fiji that allow people to transact with a BSP account. This was initially passbook based, but we’ve turned that around the take the passbooks out and put them onto card based accounts. Most of these post offices have an EFTPOS-based solution that allows withdrawals and deposits by card. We’re negotiating with Post Fiji at the moment to allow them to be able to open accounts as well.
BSP has progressively introduced a lot of new mobile banking services. We’ve had a mobile product in place for over four years now. You can check your balances, you can check your last 10 transactions, you can pay bills, you can pay third parties’ bank accounts and you can top-up your mobile phone. These are really important services.
My wife is from Kadavu and I’ve spent time in the village with her family. Their village is probably about an hour’s boat ride from the nearest postal agency in Kavala. So if you want to top your phone up you have to jump in a boat and use fuel and time to get around there to top up your phone. But with our service you can top up your phone without leaving the village.
Mobile phone coverage in most areas is generally pretty strong but it is challenging in some areas. I know of one agent who has to walk into the sea to get a signal! When the customer wants to pay with a card he actually has to walk in water up to his knees before he can get a signal.
This agency network and technology, in my view, is the best way to empower people and provide them with financial services.
Aside from personal banking, how are you applying these lessons to micro-enterprises?
It’s an area that’s quite challenging. We’re in the process of bringing in a new product that’s been working in Papua New Guinea for some time now, called Smart Business. It gives people a transaction based account and a savings account initially. We encourage them to bank what they’re earning and not spend it all at once, so they can invest their savings in expanding their business. After 12 months, they have quasi-financial statements based on their bank statements. We’re taking the Papua New Guinea model and we’re adapting it for what we see are the differences in the Fiji environment and then we intend to take that to the market place.
Earlier this year BSP moved over to a new core banking system in Fiji. What are your main priorities in terms of growth and expansion in this country going into 2016?
Going back to the core banking change, one of the side effects that came with that was we really had to freeze out any major changes for over 12 months before that happened. Since we implemented it in September this year, we’ve had to go through a period of stabilization. We have a lot of new products and services that we’ve been waiting to implement. We’re going to have an internet-based online savings account, which will come out soon. We’re moving into smartphone and tablet apps. The penetration of smartphones is growing quite tremendously as they’re becoming more affordable and the people here are quite reasonably tech savvy, so coming up with a set of apps that are properly built for smartphones and tablets is certainly one of our priorities.
The core system was really important for us. BSP does about 1.1 million ATM transactions a month here in Fiji. It was really important to build something that could handle a strong increase in the volume. We’re going to have a very stable system going forward that will allow for new products and further growth.
You have been the country manager of BSP in Fiji since shortly after the acquisition of Colonial Group, and therefore you are the face of the company that everyone knows in Fiji. What attracted you to the challenge of establishing and growing BSP’s presence here in Fiji?
I had 31 years at Westpac before I joined BSP. When I joined BSP I was hired to look at expanding in Fiji but initially the acquisition opportunities weren’t there. They asked me to stay in PNG and I ran the retail bank in PNG for four years, which was an amazing experience because I traveled the length and breadth of the country, visiting every single branch. It was really the Colonial acquisition in Fiji that created the opportunity for me to come down and run what was a decent sized business.
How does Fiji rank as a place to live, work and do business?
It’s great. Every place I’ve worked in the Pacific has been a great experience and each one of them has different quirks and cultures. When I worked in the Solomon Islands from 1990-1996, it was a tough place to live. The roads were bad, the power was bad, the water was bad, but it was a great community of people and we had a great time. PNG as well. Fiji is an excellent place both to live and work.
What would be your final message to someone who may be looking at Fiji as a potential place to do business?
Fiji is just such a wonderful destination. There are no language difficulties here. English is very well spoken. We’ve got a great group of people that have come here to semi-retire. There’s a lot of US investment in Savusavu and Taveuni and other places. For a retirement lifestyle, it’s very easy place to live in. From a business perspective, you’ve just got to look at the growth rates.
It is a very competitive business sector and you can’t expect just to walk in and people will lie down at your feet. You’ve got to find your niche. We have some very skilled business people here that are looking for opportunities all the time, so you’ve got to bring you’re A-game here to succeed in this marketplace.
I think Investment Fiji and the government are really making positive changes to try and facilitate the process. Government approvals can be challenging but they have a lot of agencies now working together to make those initial approvals happen much quicker.
The fact that Fiji is the hub of the Pacific gives you an opportunity to establish something here and then take that to the broader Pacific marketplace as well.