 Port Moresby, Papua New Guinea.

OCTOBER 2019

PACIFIC FINANCE SECTOR BRIEFS PAPUA

ADB PACIFIC LIAISON AND COORDINATION OFFICE NEW GUINEA
AT A GLANCE

PAPUA NEW GUINEA

Population
8,251,000 (2017)a
GDP (current $)
$25 billion (2018)b
The economy of Papua New Guinea (PNG) is dominated by labor-intensive agriculture and
GDP per capita
capital-intensive extraction of oil, gold, copper, and silver. PNG’s formal economy consists
$2,773 (2018)b
of enclave extractive industries (mining, petroleum, and logging); the production of cash crops;
and a small, import-substituting manufacturing sector. The informal economy, from which GNI per capita
roughly 87% of PNG’s people derive their livelihoods, is largely characterized by subsistence $2,410 (2017)a
agriculture. Mining and petrochemicals now account for over a quarter of PNG’s gross domestic Domestic credit provided
product (GDP)—greater than the combined contribution of agriculture, forestry, and fisheries— by the banking sector
and over 80% of exports. Agriculture, forestry, and fisheries account for 20% of industry gross value (% of GDP)
added, while the manufacturing sector remains small and consists of food processing and canning, 44.3% (2017)a
bottling of soft drinks and beer, tobacco processing, and furniture making.
Financial system assets
(% of GDP)
PNG continues to face significant challenges in making economic growth more broadly based
to achieve sustainable and inclusive development outcomes. Available data show that less 63.4% (2017)a
than 10% of the country’s working age population is able to access formal job opportunities in the
private sector. Moreover, many areas of service delivery—such as health, education, transport, GDP = gross domestic product,
GNI = gross national income.
energy, and water—remain weak, particularly in rural areas. PNG was unable to meet any of its a
 Source: Asian Development Bank.
Millennium Development Goals. For growth to be inclusive and sustainable, PNG needs a more 2018. Key Indicators for Asia and
conducive environment for the private sector to expand and create jobs. the Pacific. Manila.
b
 Source: Asian Development Bank.

FINANCE SECTOR OVERVIEW

PNG’s finance sector is advancing, but it remains limited in scope. The country’s ratio of
private sector credit to GDP averaged 22% from 2011–2017. As with some other countries in the
region, PNG’s economy is only moderately monetized, with its ratio of broad money (M3) to GDP
still below
ASIAN 50% as of 2017 (Table
DEVELOPMENT BANK1).
Table 1: Nominal Gross Domestic Product, 2011–2017
2011 2012 2013 2014 2015 2016 2017
GDP ($ million) 18,234 21,321 21,327 23,152 22,501 21,580 23,165
M3 ($ million) 6,539.0 8,152.6 8,091.4 7,653.1 7,098.8 7,138.9 6,969.7
M3/GDP (%) 35.9 38.2 37.9 33.1 31.5 33.1 30.1
Private sector credit ($ million) 3,815.4 4,873.9 5,348.3 5,264.4 4,909.9 4,583.2 4,410.6
Private sector credit/GDP (%) 20.9 22.9 25.1 22.7 21.8 21.2 19.0
GDP = gross domestic product, M3 = broad money.
Note: Figures were converted from kina to United States dollars using the ADB-recognized exchange rates for each year.
Sources: Asian Development Bank and Bank of Papua New Guinea.

Table 2: Financial System of Papua New Guinea

Type of Institution Number
Weak development and access remain a challenge for the
Commercial banks  4
country’s finance sector. The International Monetary Fund (IMF)
Other financial institutions 12
observed in 2015 that the size, composition, breadth, and
Savings and loan societies 22
diversity of PNG’s financial services sector were still limited.
Only four commercial banks were operating in PNG at the end Mobile network operator  1
of 2015. The number of other financial institutions, such as credit Money remittance operator  1
unions and cooperatives, did not increase substantially from Money changers  9
2004 to 2015. In 2015, PNG had only seven ATMs for every Superannuation funds  4
100,000 adults, a figure that had not changed in the preceding Investment managers  5
5 years. The Asian Development Bank (ADB) noted in 2015 Fund administrators  3
that growth of PNG’s finance sector remained limited due to the
Life insurance companies  5
country’s geography and remoteness as well as its high levels of
Life insurance brokers  4
crime, corruption, and poor security restricting cash movements
Stock exchange  1
across most of the country. Weak growth of the sector may also
be attributed to excessive regulation and high costs (which hinder Stockbrokers  2

competition), and limited knowledge of financial services Total 73

(which restricts business growth). Sources: Bank of Papua New Guinea and Port Moresby Stock Exchange.

FINANCE SECTOR STRUCTURE Commercial banks remain the dominant group in PNG’s
finance sector. The four commercial banks operating in PNG—
PNG’s finance sector is more developed than that of ADB’s two of which, Bank South Pacific (BSP) and Kina Bank, are locally
14 other Pacific developing member countries (DMCs), based—accounted for almost 63% of the sector’s total assets
but it still trails comparable countries in other regions. in 2017. The two foreign-owned banks licensed to operate in
Unlike most Pacific DMCs, PNG’s finance sector not only PNG are the ANZ Banking Group (as ANZ PNG) and Westpac
includes the usual institutions such as commercial banks and Bank (as Westpac PNG). Among the four commercial banks,
microfinance companies, but includes more complex entities BSP accounts for half the banking system’s assets, with ANZ PNG
such as superannuation funds, life insurance companies, and a and Westpac PNG sharing the bulk of the remainder (ADB 2015).
stock exchange (Table 2). The Bank of Papua New Guinea serves BSP dominates domestic and regional banking as the largest
as the primary government regulator for most financial institutions bank with the widest network of branches and the broadest
in PNG. Despite the diversity of institutions, PNG’s finance sector customer base.
remains underdeveloped. Many Papua New Guineans do not
have bank accounts and are uninsured. A 2018 World Bank report The role of superannuation funds in PNG’s financial
into financial protection highlighted that a significant portion landscape cannot be understated, as they remain the only
of lending to individuals is provided by unregulated lenders, institutions with long-term instruments. The four authorized
often at highly inflated rates of interest. While there is potential superannuation funds (Nasfund, Nambawan Super, Defense
for the development of the sector, several constraints hinder Force Retirement Benefit Fund, and Aon Master Trust) make up
its expansion. the second largest group in PNG’s finance sector, accounting
for 26% of financial system assets in 2017. PNG law requires
PNG’s finance sector grew an average of 15% each year from pension contributions to be made for all government and
2011–2013, but has since declined at an average rate of 3.3% private sector employees in firms with more than 15 staff.
per year (Table 3). The sector’s assets accounted for 63.4% of the Continued economic growth and a young population make
country’s total output in 2017, down from 89.5% in 2015. superannuation funds important for long-term savings in PNG.
Table 3: Financial System Assets 2011–2017 ($ million)
2011 2012 2013 2014 2015 2016 2017
Commercial banks   8,660.5 10,895.8 11,139.8 10,270.1  9,938.3  9,437.2  9,219.5
Superannuation funds   2,708.3  3,500.6  3,741.4  3,836.2  3,675.5  3,561.2  3,851.2
Other financial institutions    864.2  1,011.5  1,083.8  1,035.3    955.0    852.5    933.7
Insurance companies    407.8    504.7    674.4    614.7    530.1    460.9    497.4
National development bank    112.6    182.1    207.3    225.1    213.4    192.4    190.4
Total assets 12,753.5 16,094.7 16,846.8 15,981.5 15,312.2 14,504.1 14,692.2
Note: Figures were converted using Asian Development Bank’s 2017 exchange rate.
Source: Bank of Papua New Guinea.

Table 4: Consolidated Loans and Advances from Commercial Banks ($ million)

2011 2012 2013 2014 2015 2016 2017
Agriculture 69.5 105.3 105.8 107.5 90.0 60.6 63.5
Industry 494.0 809.7 840.4 909.1 1,059.7 905.5 656.6
Services 1,916.1 2,403.9 2,611.5 2,890.6 2,613.7 2,677.9 2,571.8
Finance 10.0 15.4 14.8 16.5 13.0 66.6 102.0
Total 2,489.5 3,334.4 3,572.6 3,923.8 3,776.4 3,710.5 3,393.9
Note: Figures were converted using Asian Development Bank’s 2017 exchange rate.
Source: Bank of Papua New Guinea.

These funds may also play an important role in the future Although there has been an increase in the industry sector’s
development of capital markets and in the government bond share of commercial bank loans since 2012, the services sector,
market (ADB 2015). with 75.7% of loans, remains the biggest recipient of commercial
bank funding.
Meanwhile, microfinance institutions provide an alternative
source of financial services to the less privileged. With
commercial banks focusing more on urban-based transactions, FINANCE SECTOR PERFORMANCE
microfinance firms have a growing role in the rural economy.
Even urban-based small enterprises that do not have access Private sector credit grew steadily from 2011 to 2014 at average
to formal financial services are being serviced by microfinance of 15.7% per year. However, from 2015 to 2017 it has declined
firms. These institutions are largely used for savings, since at an average rate of 8.6% a year (Table 5). Nonperforming loans
deposits greatly exceed loans, indicating the important role of increased from 2013 to 2015, and have remained elevated.
the microfinance sector in providing liquidity to PNG’s financial However, the lending rate declined by an average of 4.1% from
system (ADB 2015). 2011 to 2017, indicating some improvements in access to credit.

After strong growth in 2012, the value of bank deposits has

COMPOSITION OF CREDIT fallen. Bank deposits increased sharply by 22.8% from 2011 to
2012, but have since declined at an average rate of 4.9% per year.
Credit access in PNG has improved over time. Total loans and This is despite the introduction of financial literacy programs
advances grew considerably from 2011 to 2015, though these to encourage an inclusive financial system and broaden the
have fallen from 2015 to 2017 (Table 4). Among 11 Pacific depositor base.
DMCs, PNG ranked second in the 2017 World Bank Doing
Business survey on the ease of getting credit.1 PNG strengthened The majority of the population still has limited access to
access to credit by passing a law that broadens the scope of assets finance as banks remain reluctant to lend. Borrowers tend
that can be used as collateral and allows out-of-court enforcement to be urban-based, with banks maintaining low exposure
of collateral (World Bank 2017). Such reforms can provide a to agriculture and semi-subsistence farming, despite 80%
more conducive environment for growth of small enterprises. of PNG’s population depending on the agriculture sector.

Getting credit measures the legal rights of borrowers and lenders with respect to secured transactions through one set of indicators and the reporting of credit
1

information through another. The first set of indicators measures whether certain features that facilitate lending exist within the applicable collateral and
bankruptcy laws. The second set measures the coverage, scope, and accessibility of credit information available through credit-reporting service providers,
such as credit bureaus or credit registries (World Bank 2017).
Table 5: Financial Sector Performance Indicators
2011 2012 2013 2014 2015 2016 2017
NPL ratio (%)     2.1     2.2     1.8     2.1     3.1     2.5     2.8
Deposits ($ million) 6,924.4 8,505.3 8,435.5 7,966.4 7,391.8 7,144.5 6,620.7
Commercial bank loans to the private sector ($ million) 2,468.9 3,333.6 3,565.6 3,910.4 3,738.6 3,603.1 3,274.7
Deposit rate (%)     0.9     0.5     0.3     0.3     0.4     0.7     0.5
Lending rate (%)    10.8    10.8    10.1     9.4     8.7     8.4     8.4
NPL = nonperforming loans.
Note: Figures were converted using Asian Development Bank’s 2017 exchange rate.
Sources: International Monetary Fund and Bank of Papua New Guinea.

Table 6: Financial Access Indicators

2011 2012 2013 2014 2015 2016 2017
Number of bank branches      75        77        77        77        77        77        77
Number of ATMs     309       315       351       371       377       472       463
Number of deposit accounts with commercial banks 762,950 1,112,627 1,166,173 1,371,275 1,880,330 2,140,024 2,486,823
Number of loan accounts with commercial banks 205,421   187,514   180,978   225,472   238,749   194,125   215,715
Source: International Monetary Fund. 2019. Financial Access Survey. Washington, DC.

Bank loans are normally extended only to large and medium-sized FINANCIAL INCLUSION

formal sector companies, while smaller firms find it difficult to
access credit (ADB 2015). Regulatory barriers and high costs have Strong progress has been made in modernizing PNG’s banking
discouraged the growth of the banking sector. methods, while traditional banking infrastructure has been
gradually expanding. As of 2017, there were 77 bank branches
Meanwhile, insurance companies and other financial in PNG, while the number of ATMs had reached 463. PNG has
institutions have seen growth in their assets, albeit marginally. a relatively high number of mobile banking accounts per adult,
Although the assets of these companies grew from 2011 to 2015, compared to other Pacific island countries—9.4% versus 4% in Fiji,
the growth was of only slight significance as it did not alter and none in Vanuatu (IMF 2015).
the overall structure of the finance sector. Other financial
institutions—including merchant banks, savings and loans Despite gains in financial inclusion, PNG still compares
societies, investment managers, and fund administrators— poorly against regional averages and other lower middle-
represented, on average, 6.4% of the sector from 2011 to 2015, income countries for most indicators of financial access.
while insurance companies comprised 3.5%. Insurance makes The IMF (2015) cites, for example, that in 2013 only 27% of
up a small part of PNG’s economy, below 2% of GDP, compared adults in PNG held deposit accounts. This compares with an
to a global average of 7.5% (Oxford Business Group 2016). average of 76% of adults in lower middle-income Asian countries
Although the country’s insurance industry is generally in good in the same year, and 85% of adults in developing Asian countries.
health, some companies are not well capitalized, and the collapse Moreover, only 4% of adults in PNG had outstanding credit at the
of one company could have a significant impact on the finance end of 2013, compared to 17% of adults in lower middle-income
sector. Weak insurance regulation has led to a lack of transparency Asian countries and 18% of adults in developing Asian countries.
and reliable data. The latest Financial Development Index of the IMF indicates
that, in terms of both finance sector depth and access to financial
Capital markets remain poorly developed, even though PNG is services, PNG is lagging behind regional averages. This indicates
one of only two Pacific island countries with a stock exchange the need for more relevant infrastructure—from better roads and
(the other being Fiji). Founded in 1999, the Port Moresby Stock transport services to more ATMs and mobile banking services—
Exchange has only 15 listed companies, with limited options for and for intensified financial education and literacy initiatives to
investors resulting in a low market capitalization of K54.4 billion. deepen the coverage of financial services.
Its rules are used under license from the Australian Stock
Exchange, on which some of the Port Moresby Stock Exchange-
listed companies are also listed. The industries of the companies CHALLENGES IN THE FINANCE SECTOR
listed include aviation, banking, finance, manufacturing, mining,
oil, and gas. Difficulties surrounding the availability and movement The majority of the population of PNG has limited access to
of foreign currency in recent years has also provided a challenge formal financial services. Around 63% of Papua New Guineans
for some looking to invest in PNG. do not have any form of banking or financial accounts (Center for
Excellence in Financial Inclusion and Bank of Papua New Guinea The government has taken steps to reform PNG’s finance
2016). While structural constraints play a role in limiting financial sector and make it more inclusive. It has made the strengthening
access, limited knowledge of, or exposure to, financial services, of bank governance a top priority. The government also increased
as well as geographical distance from these services, are also worker participation in superannuation funds by lowering
major contributors. Lack of access to finance seriously impedes from 15 to 10 the number of people employed in order for an
the growth of PNG’s private sector. With financial services enterprise to be required to participate. The government also
concentrated mostly in urban areas, increasing the access of aims to promote and expand financial literacy, broaden insurance
rural and remote residents, through financial literacy training and coverage, create a financial consumer protection system, provide
noncash payments or savings, has become a primary focus of financial services to informal and agricultural enterprises, enhance
government strategies. financial access for small and medium-sized enterprises, and
promote the expansion of digital financial services.
Weak financial access and an underdeveloped finance sector
is rooted in both economic-level and country-specific factors.
Stringent regulations are potential barriers to a competitive REFERENCES
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About the Asian Development Bank

ADB is committed to achieving a prosperous, inclusive, resilient, and Asian Development Bank
sustainable Asia and the Pacific, while sustaining its efforts to eradicate Pacific Liaison and Coordination Office
extreme poverty. Established in 1966, it is owned by 68 members— Level 20, 45 Clarence St, Sydney, 2000, Australia
49 from the region. Its main instruments for helping its developing member +61 2 8270 9429
countries are policy dialogue, loans, equity investments, guarantees, grants,
and technical assistance. https://www.adb.org/publications/pacific-finance-sector-png

This Finance Sector Brief was prepared by ADB’s Pacific Department. Corrigenda to ADB publications may be found at
http://www.adb.org/publications/corrigenda
The views expressed in this publication are those of the authors and do not
necessarily reflect the views and policies of ADB or its Board of Governors or In this publication, “$” refers to US dollars.
the governments they represent. All photos are from ADB.

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Publication Stock No. BRF190377-2 DOI: http://dx.doi.org/10.22617/BRF190377-2