Westpac stays, so what’s next?

Shane Smith (Photo: Supplied)

Westpac’s October announcement that it no longer planned to sell its remaining businesses in Papua New Guinea and Fiji, and its statement to the Australian Stock Exchange that it would increase investment in its subsidiaries, was warmly welcomed by governments and the business community in those countries.

Westpac first announced its plan to sell its Pacific businesses in December 2020, but an AU$420 million attempt by Kina Securities to buy the operations was stymied by PNG’s Independent Consumer and Competition Commission, which said it would “limit national economic progress.”

BRED Banque Populaire, the Fiji National Provident Fund, NasFund and Credit Corp had also expressed interest in the entities. But nothing came to fruition, leading the bank to close the sales process.

On a recent visit to Fiji, Westpac Senior Economist, Justin Smirk said the message to clients has been that the bank has a genuine commitment to the region.

“It’s now got a focus of actually investing and growth,” Smirk told Islands Business. “We’re now targeting to try and renew a lot of the relationships we had and rebuild the confidence in the industry. We see great opportunities within Fiji, and it’s a real commitment that we’re here to stay. It’s a big shift from what was being talked about a couple of years ago.”

He says Westpac changed its mind about the sale for two reasons.

“Of course, the difficulty in selling the business to begin with, so that’s the genuine, honest answer. The second one is Anthony Miller. Now the Pacific bank reports to him, he was very, very confident and believed in the business.”

The decision has been warmly received by figures such as Reserve of Fiji Bank Governor, Ariff Ali, who says: “As somebody who’s responsible for making sure that there’s financial stability, I think the fact that Westpac is staying is a good thing for Fiji. They’re a bank that has a very strong credit rating. Businesses and corporates want banks that provide services on par with international standards.

“I think the other important thing is that they have been here for over 100 years, they have strong capital, so they can contribute to the growth of the Fijian economy, and to me, it’s something that is positive and brings about confidence,“ he told Islands Business.

The only other AA rated bank in Fiji, is ANZ. That bank’s Country Head, Rabih Yazbek says Westpac’s decision is good for the economy.

“They are a fellow Australian bank that is held to the highest standards. So we applaud their decision, and at the end of the day, if you are realistic about any industry you’re in, you accept that competition is good. And having another Australian bank in the market is fantastic for competition and the standards we set, and also great for Fiji.”

He continues: “A lot of trade is underpinned by bank-to-bank letters of credit, and without a strong credit rating, those letters of credit are not accepted. So, having a second AA rated bank in Fiji means local corporates and commercial businesses have more choice when it comes to facilitating their trade flows.” 

Executive Director at the Australia-Papua New Guinea Business Council, the Australia-Fiji Business Council, and the Australia-Pacific Islands Business Council, Frank Yourn says Australian businesses will also benefit.

“My view is that businesses tend to follow their banking interests into markets,” Yourn adds, saying that the departure of Westpac from a number of other Pacific countries (Samoa, Tonga, Cook Islands, Solomon Islands and Vanuatu) in 2015/16 was disappointing.

“There’s a lot of business that banks can do in the Pacific. There’s lots of big donor contracts floating around in the Pacific, I mean, Australia, on its own has got a AU$4 billion infrastructure financing facility in the Pacific, and that will be predominantly serviced through Australian banks. Westpac, of course, can pick up some of that business in PNG and Fiji now, and PNG will be the biggest market for that infrastructure program. 

“But it’s not just the Australian infrastructure financing facility. All of the multilateral development banks have significant programs in and across the region. A lot of those programs will be delivered by Australian business too and if they have the choice of working with Australian banks, that will generally be their preference.”

Yourn says the onus is now on Westpac to fully engage in its two Pacific markets.

“I think that means probably investing some money,“ he notes, adding that for “seven or eight years really, they’ve been in this sort of in-between land. I think they probably haven’t invested in systems and stuff like that in their businesses in the Pacific and some of those systems are a bit clunky these days. Westpac has made a decision, which has been publicly announced about investing more in their systems and it in Australia, and hopefully some of that will flow through to the Pacific operation as well.”

The Australian Financial Review has reported Westpac sources as saying Chief Executive Peter King had “received messages from Canberra that it would be desirable to maintain its operations in the Pacific, as China’s interests and influence in the region expands.”

Following October’s announcement, Australia’s Pacific Minister Pat Conroy said: “The Australian government is really happy about the decision and it demonstrates the Australian corporate sector’s commitment to the Pacific.”

Fiji’s Deputy Prime Minister and Minister for Finance, Professor Biman Prasad said the decision to maintain its presence in Fiji reaffirms the bank’s confidence and commitment to economic development and financial stability in Fiji.

“Government looks forward to enhancing its partnership with Westpac Fiji to further support financial intermediation, banking sector development, financial inclusion, and overall economic progress,” Prasad said.

Local CEO, Local priorities

Shane Smith has been Westpac’s Chief Executive in Fiji since February 2022. He was the first local appointed to the in 120 years.

Smith says to his team’s credit, they continued to focus on the customers through this period of uncertainly.

“My gut feeling is I think we were distracted earlier on. The moment we went ‘you know what, we have customers to look after, we’ve got a business to run, a great franchise, let’s just focus on that’, that really helped. So when the decision was made that we’re going to stay, we were already on our journey…and I would say the same for Papua New Guinea as well. 

“Thankfully we didn’t drop tools and stand still.  Now we are here to stay, how do we make this work in a strategic fashion?”

Smith told Islands Business that digital services will be a big part of Westpac’s future in the Pacific and noted that the introduction of mobile wallets means that mobile network operators are reaching more remote areas than banks ever will.

“The branch as it is today will not be the same in five, ten years. And the reason for that is digital, technology take-up in Fiji is really, really strong. Mobile penetration is 80, 85%, its phenomenal.”

Smith says 60-70% of activity in branches currently relates to cash and cheque handling, and once that disappears, branches will look very different.

“Knowing that will happen, we are really conscious around not overcapitalising in bricks and mortar, and all our investment will go down then digital route, mainly to improve the customer experience, grow the business, and also significantly mitigate risk.”

In Australia, Westpac has acquired a money management app, and Smith says they are exploring how it might be rolled out in Fiji.

“What’s interesting for me personally in the last few years, is that even though investment in the business was limited, what’s important was that our returns have been at record levels and it really teaches you a lesson that sometimes you don’t need all the sort of technology widgets. We’re in the service business and we’re in the people business for customers…That to me was the big takeaway for the last two to three years, how important the customer is.”

Meanwhile, back in Papua New Guinea, Papua New Guinean economist and FDC Pacific Fellow at the Lowy Institute, Maholopa Laveil also welcomes Westpac’s decision to stay, saying if it had left PNG,  it would have concentrated power in an even smaller number of banks.

“Domestically I think it’s very good for PNG. It provides a competitor to retail and corporate clients to BSP and Kina, which are the largest banks. And there are two smaller banks that have been awarded provisional banking licenses for a year.”

He also welcomes Westpac’s undertaking to expand its operations but asks how it will react to the new taxes on banks imposed by the PNG government and how will it navigate what he describes as an “ah hoc fiscal regime”. Laveil also questions how Westpac (and other banks) will reach PNG’s large unbanked population who are operating in the informal economy.

“They have to tailor the services to both the needs and the context. They’ve served in PNG for the last 100 years. And so this is not new to them. They’ve got a historical footprint, they’ve stayed in there, they’ve seen the problems, they’ve navigated different governments, they’ve navigated different changes in legislation. And so it’s just increasing it with a social consideration. And I think DFAT’s explicit support for Westpac is encouraging. And it may be geopolitical nature. Really, either way, it helps Westpac’s footprint in the region, and really it helps with the domestic conditions of an uncompetitive market, and then addressing an unbanked population.”