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Saturday, April 14, 2007

What profits did Bank South Pacific Limited record?

The Key Disclosure Statement published by Bank South Pacific Limited in the Fiji Times, Saturday, 14 March 2007, noted that it recorded a net income after tax of F$62.0 million for its financial year ended 31 December 2006 compared to F$55.1 million recorded the year earlier.

Sounds right? NO! The figures must have been misreported as the top of the Key Disclosure Statement state that they are in FJD'000 with the net income reported for 2006 as 62,009 or F$62,009,000 and 55,124 or F$55,124,000 for 2005.

Being the smallest bank in Fiji, this definitely does not seem right as ANZ being the largest bank only recorded net profit after tax of a little over F$40 million for 2006.

So, I would read it that the bank recorded only F$62,009.00 for 2006 and F$55,124.00 for 2005.

Let's hope that these banks and the regulator, Reserve Bank of Fiji as financial system regulator, check these things properly before authorising their issue as they tend to "over excite" people who read them.

Anyway, of note is that Bank South Pacific, which bought the Fiji operations of Habib Bank Limited, has placed most of its asset portfolio in securities and investments rather than in lending. This would mean that it has continued an overly cautious approach which was adopted by its predecessor owner, Habib Bank of Pakistan.

The bank's major source of funding has been non-interest bearing deposits, rather than interest bearing deposits. In the high interest rate environment that existed and which continues, one wonders whether depositors in that bank understand what they are losing out on by parking their funds for "free use" by the bank.

These are things that Fiji consumers would hopefully understand if they use advice from appropriately qualified professionals.

No data is given on the bank's proportion of bad loans to total loans, however, it is interesting to note that they are highly capitalised and meet the minimum capital adequacy ratio requirement of 8%. This is understandable, though, considering that the bank placed the majority of its assets in a lower risk weighted assets such as securities (which would mainly be government securities) and investments. That action has the resulting effect of reducing the bank's risk weighted assets base and increasing its capital adequacy ratio.

This is one bank whose performance over the next year would be interesting to follow as the strategic direction taken by its new owners come to bear. We, therefore, look forward to its performance over 2007.

Note : Those that need investment advice can use our company, Gilbert & Samuels Company Limited. Our principal, Gilbert Veisamasama Jr, is an Investment Advisor licensed by the Capital Markets Development Authority (of Fiji). To contact us, e-mail gilbert@connect.com.fj or call telephones (679) 3396427 or (679) 9921427.

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