In an interim determination, Papua New Guinea’s Independent Consumer and Competition Commission (ICCC) says it may not allow Kina Bank to buy Westpac’s remaining assets in the Pacific. Both banks will have the opportunity to allay the regulator’s concerns next month, with a final determination expected in September.
Kina Bank received regulatory approval to acquire the retail assets of ANZ in PNG back in March 2019 – a move which gave it a comparable market share to Westpac PNG.
Australia’s Westpac reached an agreementlast Decemberwith Kina Bank to sell its remaining assets in the Pacific– its PNG and Fiji operations – in a deal worth around K1.1 billion (AUD$420 million).
That deal is now in question, following a draft determination by one of the two regulators with a say over the transaction, the ICCC. (The other is PNG’s central bank, the Bank of Papua New Guinea.)
The ICCC’sdraft determinationstates that ‘it is not satisfied that this Proposed Acquisition would not have, and would not be likely to have, the effect of substantially lessening competition in the relevant markets.’
The ICCC also suggests the sale would increase barriers to entry in PNG’s retail banking market, lead to increased ‘market power’ for the two remaining retail banks (Kina Bank and BSP) and lead to a ‘likely absence of true competitive pressure’.
In theory, a larger Kina Bank should be able to compete more effectively with the Pacific’s largest bank, BSP, which has about 70 per cent of the lending market in PNG.
Current bank market share in PNG. Source: Bank of PNG submission to ICCC
While the draft determination concedes that the acquisition would allow Kina Bank ‘to gain scale, scope and network economies necessary to compete more effectively with the dominant firm’ [BSP], it says ‘the incentive to “coat-tail” and the ability to do so in a highly concentrated market would be very strong and likely to override the incentive to compete’.
In a statement to the market this week, Kina Bank says the ICCC’s draft determination ‘contains statements and reasoning which Kina contests.’
‘Kina is committed to this transaction, as Kina believes that the transaction will actually improve competition in the relevant markets and will deliver a number of substantial public benefits,’ it said.
What next?
Predicted likely bank market share in PNG if Westpac sale goes ahead. Source: Bank of PNG submission to ICCC
A pre-decision conference is tentatively scheduled by the ICCC for 11 August to allow Kina and other stakeholders to discuss and provide comments on the draft determination, with final comments and submissions due to the ICCC by 20 August 2021.
The ICCC is expected to release its final determination in September, which would be ahead of the original proposed date for a final handover of Westpac’s assets – the end of September.
A negative final ruling would prevent the acquisition – which has already been approved by Kina bank’s shareholders – going ahead. This would force both banks back to the drawing board.
Earlier this year, Kina revealedits visionto run the acquired assets ‘independent and separate from the existing Kina Bank brand,’ in order to retain Westpac’s existing banking licence in PNG and head off objections that the acquisition might be anti-competitive.
This vision is supported by Westpac, which also issued a statement yesterday in response to the draft determination:
‘Given Kina Bank’s commitment to financial inclusion and innovation, its proposal to retain all local staff and branches, and its intention to maintain two brands in PNG, Westpac believes that the transaction is in the interests of Westpac’s customers and staff and the people of Papua New Guinea and Fiji.’
The ICCC is also currently considering another potentially contentious acquisition – Air Niugini subsidiary Link PNG’s bid to acquire 49% of its main competitor, PNG Air. Submissions for this determination closed on 20 July.
(20min delay)