Renegotiating terms or refinancing are proving to be the best way to deal with the shock caused by COVID-19 according to Mark Baker, Managing Director of ANZ Bank Papua New Guinea. In an exclusive interview he tells Business Advantage PNG that improving confidence is the big challenge.
Business Advantage PNG (BAPNG): How has the COVID-19 crisis affected ANZ’s business in PNG?
Mark Baker: The PNG economy was already challenged before COVID-19, so we went into this crisis with a relatively weak economy. The settings of the bank going into it were already on a certain format with regards to risk, and how we were managing risk. COVID-19 just accentuated that. The other thing that is different is that we are now just a corporate and institutional bank. That is a simpler organisation to run. But, in terms of how we manage customers, I think COVID-19 has just added a layer of complexity to what was quite challenging anyway.
BAPNG: How would you characterise current business conditions in the country?
Baker: It varies by sector. Anyone involved in aviation, aviation services, hotels – they have got very definite challenges. With some of the supermarkets, it comes and goes depending on restrictions. It is really a story of sectors, which is unsurprising but you would probably say that the larger companies are generally better able to deal with this because they will often have stronger balance sheets. If you are looking at commercial businesses or SMEs – that is where it is hurting. But that is not unique to PNG.
BAPNG: Are you renegotiating terms with your customers, or refinancing?
Baker: Yes. That is a pretty effective way of supporting cash flow. We said in March that, if people came to us showing there is an impact on their business due to COVID-19, we would absolutely sit down with them and talk about principal or interest holidays. Even in March, we immediately put in some six-month holidays for some customers and we could see that for some sectors it was going to take a lot longer than that to recover. If they are coming to us and saying they need an extension, then it is in everyone’s interest to keep these companies going. Principal and/or interest deferrals are much more effective, in terms of supporting cash flow than, say, a uniform interest rate reduction. In many respects, for some businesses what they don’t need right now is to borrow more money. Their underlying business may not have the cash flow to deal with the increased debt, so what you are trying to do is actually support the business through this through other means.
‘The sovereign [rating] was under pressure from a fiscal point of view and now there are some other risks in there as well.’
BAPNG: Have recent disputes over resources projects affected PNG’s sovereign risk rating?
Baker: I think it is under pressure, because investors do look really carefully at these situations – and the Porgera [dispute] is now in court. The arbitration process will be very closely scrutinised, if that is what the parties follow. I think any of these things are really closely watched globally. The sovereign [rating] was under pressure from a fiscal point of view and now there are some other risks in there as well. At the end of the day, it certainly doesn’t enhance it.
‘Single projects are not going to change the economy, what they will do is change confidence.’
BAPNG: How do you see Australian sentiment towards PNG at the moment?
Baker: The relationship between Australia and PNG is obviously close on many levels. I think more recently you have seen a bigger profile around the government-to-government relationships, and the Australian government has recently provided additional financial support, as well as progressing with elements of their Pacific Step-Up. The private sector is keen to see how this plays out, and the role that they can play, for example, in supporting programs like the Australian Infrastructure Financing Facility for the Pacific whilst major announcements have yet to be made and single projects are not going to change the economy. What they will do is change confidence.
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