Kina Securities Limited Half Year Results 30 June 2018 Important - - PowerPoint PPT Presentation

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Kina Securities Limited Half Year Results 30 June 2018 Important - - PowerPoint PPT Presentation

Kina Securities Limited Half Year Results 30 June 2018 Important notice and disclaimer Title here You must read this notice before reading or making any use of this document or any information contained in this document. By accepting this


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Kina Securities Limited

Half Year Results – 30 June 2018

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Title here

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Important notice and disclaimer

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You must read this notice before reading or making any use of this document or any information contained in this document. By accepting this document, you agree to the following terms and conditions, including any modifications to them. Confidentiality: This Presentation and the information contained in this Presentation are provided to the recipient (the "Recipient") on a confidential basis for the sole purpose of discussions between the Recipient and representatives of the Kina Group. This Presentation may not be disclosed to any third party or used for any

  • ther purpose without the express written permission of the Kina Group.

Disclaimer of liability: All information contained in this Presentation has been compiled by the Kina Group from sources believed by it to be accurate and reliable. The information in this Presentation was prepared as of its date, and remains subject to change without notice. The Recipient acknowledges that to the maximum extent permitted by law: (1) any and all liability in respect of the information contained in this Presentation is expressly excluded, including any liability arising from fault or negligence on the part of any person, for any direct, indirect, consequential or contingent loss or damage suffered by any person arising from the use of the information or otherwise arising in connection with it; (2) no responsibility is accepted by the Kina Group for this Presentation, any of the information, any omission from this document or any action taken by the Recipient or any other person on the basis of the information; and (3) the Kina Group is not liable to compensate or reimburse the Recipient for any liabilities, costs or expenses incurred in reviewing, investigating or analysing this document or taking any other action in relation to the Kina Group or any prospective transaction. Not an invitation, advertisement or offer of securities: This Presentation is not, and should not be considered as, an invitation, advice or recommendation to apply for securities and does not contain any application form for securities. This Presentation does not constitute an advertisement for an offer to sell or the solicitation of an offer to buy securities. This Presentation is not a disclosure document (as defined in the Australian Corporations Act) or a prospectus (as defined in the Papua New Guinea Securities Act). The provision of this Presentation is not a representation to you or any other person that an offer of securities will be made. Any offer of securities or prospective transaction would be undertaken solely on the basis of a prospectus or other disclosure document prepared in accordance with the applicable securities laws and regulations. Not financial product advice: The information contained in this Presentation is not, and should not be considered as, financial product advice, investment advice, legal advice, tax advice or other advice. The information does not take into account any Recipient's individual objectives, taxation position, financial situation or

  • needs. Before acting on the information in this Presentation, Recipients should consider the appropriateness of it having regard to their particular circumstances and,

if appropriate, seek professional advice, including tax advice. No representations or warranties: None of the information set out in this Presentation or otherwise provided to a Recipient in connection with this Presentation has been independently verified. Accordingly, the Kina Group makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any particular purpose of any such information. In respect of all information provided, the Recipient will rely entirely upon its own assessment, independent analysis and advice in relation to the business, assets and financial position and affairs of Kina Securities Limited. Forecasts: This Presentation may contain various plans, costs projections, estimates, forecasts and other forward looking statements ("Forecasts") which involve subjective judgments. Past performance is not a guarantee of future performance or future returns and a loss of original capital may occur. Fluctuations in exchange rates could have an adverse effect on the value or price of, or income derived from, certain investments. No representation, warranty or guarantee, whether express

  • r implied, is made or given by the Kina Group as to the accuracy, completeness, likelihood of achievement or reasonableness of any Forecast.

Conflicts: The Kina Group, its Directors, officers, employees or agents may own shares in Kina Securities Limited. By accepting this Presentation, you acknowledge and agree that none of the Kina Group, its Directors, officers, employees or agents are responsible to you in a fiduciary capacity nor is your access to the Presentation or the information evidence of any fiduciary relationship between you, another Recipient or the Kina Group, its Directors, officers, employees or agents individually or at all.

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Highlights

Statutory Profit of PGK20.6m Interim dividend of PGK10.0 toea/AUD4.0 cents Announced transformative acquisition of ANZ (PNG)’s retail, commercial and SME businesses Transfer of all of ANZ PNG’s retail branches, ATMs and EFTPOS terminals set to significantly increase Kina Bank’s earnings and profitability to improve returns Resolution of escrow shareholding when founding and major shareholder announced it had sold its entire stake in Kina Securities FX Income restored to PGK14.0m Strengthened USD correspondent banking relationship Successfully completed the transition of NASFUND administration Secured funds management contract with Comrade Trustee Services Now administer accounts on behalf of more than 700,000 members Maintained a strong prudential position. Well capitalised, exceeding Bank of PNG’s capital adequacy requirements Significant achievements with risk management introducing advanced compliance procedures Rebranding has been extremely successful with external market perception shifting towards seeing Kina Bank as a strong, local, safe and secure bank. Continued significant technology upgrade

Highlights

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20.6 20.0 3.0 20.5 20.5 Jun18 (HY) Dec17 (HY) Jun17 (HY) Dec16 (HY) Jun16 (HY)

Solid underlying profit performance

Dividend per share

PGK'm

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PGK'm

20.6 20.0 10.0 20.5 20.5 Jun18 (HY) Dec17 (HY) Jun17 (HY) Dec16 (HY) Jun16 (HY) Statutory NPAT (PGKm) Underlying Profit (PGKm) 4 4 2 4 4 10 10 5 10 10 Jun16 (HY) Dec16 (HY) Jun17 (HY) Dec17 (HY) Jun18 (HY) Dividends per share (A cents) Dividend per share (PGK toea) Dividend per share (AUD cents)

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Well managed margins

Focus on margin improvement

  • Net interest margin (“NIM”) at 8.1%.
  • Margin increase due to benefits of repricing deposits, coupled with growth in interest earning assets.
  • Continued focus on rebalancing the deposit book from high cost to low cost deposits for the year to go.

PGK'm

Net Interest Income {LHS} Net interest margin {RHS}

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31 34 34 39 42 8.0% 8.3% 7.3% 7.6% 8.1% 6.8% 7.0% 7.2% 7.4% 7.6% 7.8% 8.0% 8.2% 8.4%

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10 15 20 25 30 35 40 45 Jun16 (HY) Dec16 (FY) Jun17 (HY) Dec17 (FY) Jun18 (HY)

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68.9% 64.4% 72.3% 72.0% 70.0% Jun16 (HY) Dec16 (HY) Jun17 (HY) Dec17 (HY) Jun18 (HY)

Key financial ratios at a glance

Loans to deposit ratio Return on Equity Cost to Income Ratio (excludes loan provisions and lease termination)

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48.3% 46.7% 67.8% 54.9% 58.2% Jun16 (HY) Dec16 (HY) Jun17 (HY) Dec17 (HY) Jun18 (HY) 16.2% 15.9% 8.0% 8.9% 16.1% Jun16 (HY) Dec16 (HY) Jun17 (HY) Dec17 (HY) Jun18 (HY)

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Foreign exchange revenue restored

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The process involved in securing a US Dollar correspondent Bank has had significant impact on FX Income since 2H 2017 flowing through into 2018

13 8 2 5 14 Jun16 (HY) Dec16 (HY) Jun17 (HY) Dec17 (HY) Jun18 (HY)

PGK'm

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Driving loan book growth

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Lending 2017 Lending 2018 Total lending PGK746m (gross) Total lending PGK805m (gross)

Overdraft 10% Term Loans 65% Investment Property Loan 3% Asset Financing 2% Housing Loan 16% Esi loan 4% Overdraft 5% Term Loans 69% Investment Property Loan 3% Asset Financing 3% Housing Loan 15% Esi loan 5%

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On Call 41% 1 month 11% 2 months 9% 3 months 5% 6 months 22% 12 months 9% 24 months 3% On Call 40% 1 month 10% 2 months 7% 3 months 8% 6 months 26% 12 months 8% 24 months 1%

Continued deposit growth

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Deposits 2017 Deposits 2018 Total deposits PGK1.014b Total deposits PGK1.100b

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13% 14% 16% 16% 17% Jun16 (HY) Dec16 (FY) Jun17 (HY) Dec17 (FY) Jun18 (HY)

Strong balance sheet

Total Risk Based Capital (%)

Capital adequacy: T1 + T2 BPNG minimum total

6% 6%

Leverage Ratio BPNG minimum leverage ratio

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Conservative balance sheet

  • T1 and T2 capital ratio 29%, regulatory minimum 12%
  • Leverage ratio 17%
  • Coverage ratio stands at 116%

Leverage Ratio (%)

30% 30% 28% 28% 29% Jun16 (HY) Dec16 (FY) Jun17 (HY) Dec17 (FY) Jun18 (HY)

12% 12%

risk based capital

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Focus on costs

Cost higher on growth initiatives

  • Total operating costs up 37%
  • Underlying costs increase mainly due to staff and administration costs associated with planned business growth in 2018.

(Intergration, technology upgrades)

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8.2 14.6 4.7 0.7 1.1 0.2 0.3 6.6 13.8 3.5 1.0 0.6

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8.8 16.1 4.8 1.3 1.5 0.3 0.4 8.6 19.3 5.0 1.8 (0.1) (0.3) 0.1 12.9 23.5 6.6 1.3 0.8

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Administration Staff Occupancy Other Operating expenses Board of Directors cost Acquisition/Integration Investor Relationship

PGK'm

Jun16 HY Dec16 HY Jun17 HY Dec17 HY Jun18 HY

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Balancing growth and returns

Disciplined growth

  • Deposit growth of 8% in 1H 2018
  • Management focused on moving from high to low-cost deposits to reduce cost of funds

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

  • 200

400 600 800 1,000 1,200

PGK' m

Kina Loan Book Kina Deposit Book Kina Lending Market Share {RHS} Kina Deposit Market Share (RHS}

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437 605 685 733 786 634 959 965 1,019 1,098 3.5% 4.7% 5.5% 5.8% 6.0% 3.0% 4.4% 4.5% 4.8% 5.3% Jun 16 (HY) Dec 16 (FY) Jun 17 (HY) Dec 17 (FY) Jun 18 (HY)

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Sound credit quality – low impairments

Low impairments and conservative provisioning

  • Loan impairment expense of PGK4.3m for 2018 (0.5% GLA)
  • Total provisions 2.4% GLA (Impact of IFRS 9 implementation).

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0.6% 5.4% 2.3% 1.8% 1.3% 3.0% 0.5% 5.7% 4.9% 0.5% 0.3% 1.9% 0.2% 4.2% 2.7% 1.1% 0.4% 1.8% 0.4% 3.3% 1.8% 1.4% 0.2% 1.8% 0.5% 2.1% 0.2% 1.0% 0.8% 2.4%

Loan impairment expense Non-performing loans and loans in arrears

  • 60 day arrears
  • 90 day arrears
  • Gross non-performing loans

(> 180 days) Total provision Jun16 (HY) Dec16 (FY) Jun17 (HY) Dec17 (FY) Jun18 (HY)

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Banking

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Divisional performance highlights Divisional performance highlights

  • Continued strong growth in new customers
  • Strong loan portfolio growth and increased

market share

  • Reduced cost of funds by 23%
  • Non-interest income grew by 130%
  • Net interest income of PGK41.6m

up 24%

  • FX income restored to PGK14.0m

Banking

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Wealth Management

Divisional performance highlights

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  • Wealth Management business is performing to

expectations

  • Realised growth in Funds Administration by over 100%
  • Continued strong relationships with key superannuation

funds

  • Successfully onboarded major funds management accounts
  • Now administer accounts on behalf of more than 700,000

members

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Economy

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  • The overall economic performance of PNG

remains resilient despite tighter private sector lending and lower employment growth compared with recent years

  • The Asian Development Bank forecast possible

growth in the PNG economy to run at 2.8% due to one-off activity relating to the Asia-Pacific Economic Cooperation leaders’ summit

  • Additionally, rising US Treasury yields and the

expectation of further rate hikes has resulted in the depreciation of the AUD as a result of cross- currency movements, translating further to a more favorable PGK relative to the AUD.

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  • Partnership

‘Life long customer relationships. Strong valued strategic partnerships’ Digital ‘Clarity in offering that surpasses anything in the market today, best user interface, operational excellence’ Responsible ‘Strong addition to the communities we serve. Positively contributing to a growing and vibrant community’ Brand

‘Local pride in the Kina Bank brand. Recognised as a viable, secure and differentiated financial services organisation’

Knowledge

‘Recognised as having the best people in the financial services sector’

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Partnerships | together it’s possible

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Now administering over 700,000 superannuation clients for the two largest provident funds in PNG and developing a differentiated value proposition to attract members as new customers. Working with one of PNG’s leading microfinance banks to expand their existing financial inclusion program to assist with achieving The Bank of PNG’s objective to bank two million unbanked by 2020. An integration program is well established for the acquisition of ANZ PNG’s retail, SME and Commercial business. Implementing a brand new e-Switching capability with OPEN WAY in order to service Scheme Card issuing and Acquiring; Eftpos services; managing an expanded ATM fleet; and USSD mobile banking services. Established and implemented an enhanced CYBER Security management system.

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Digital | connect anytime, anywhere, anyhow

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Upgrades of core banking infrastructure continue to enhance our digital offer and better functional set with latest additions including online account on-boarding and loan application. Treasury module implementation project completed. SWIFT target hardening well progressed and incorporates new international operations partition. Completed the insourcing of all web and social media management. Significant improvements made to the core infrastructure platform supporting the Funds Administration business following the successful migration of NASFUND.

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Responsible |

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Finalising our Total Societal Impact (TSI) Strategy which will incorporate the Environmental Social and Governance Global Framework. The TSI is concentrated

  • n Financial Inclusion; Fostering Entrepreneurship and

Innovation through the development of a SME Capital Fund; and a program working with NGO’s to prepare youth for the workforce. Enhanced key sponsorships evaluation, governance and business performance. Major sporting sponsorships undertaken during 1st half of 2018 were the PNG Golf Pro-Am and PNG AFL. Brand Ambassador PNG Tennis pro Abagail Tere- Apisah supported the development of PNG Tennis.

  • Value the communities we live in and

build a better future

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Brand | local and strong

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  • Rebranding of Kina to Kina Bank has been successfully

completed with a very positive shift in market perception supported by a robust and comprehensive public relations, media and marketing plan. The success of this has been evidenced by higher new customer growth. Proactive direct management and communication to ANZ PNG’s retail, SME and Commercial customers with co- location of bankers to optimize customer retention. Key corporate event sponsorships have included Prime Minister’s Back to Business Event, the PNG Petroleum and Energy Summit, and the APNG Business Forum held in Brisbane earlier this year. Naming rights secured to The Tower Building in Downtown Port Moresby which will be renamed Kina Bank Haus.

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Knowledge | empowered and capable people

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Finalised People and Culture Plan with the objective of hiring and retaining the best talent. The key themes are culture and leadership development; strategic workforce planning; talent management; capacity building; and governance. Online Performance Management, Accreditation and Learning Development Platform now fully implemented and operational.

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