BSP Financial Group Limited

Good morning from Port Moresby, and thank you for joining us. My name is Methuselah Ekowaberia, and I'm the senior manager overseeing ESG and Investor Relations at BSP Financial Group. We released our 2026 half-year financial results to the ASX and the PNDX earlier this morning, and I would like to welcome you to our investor briefing. With me are our presenters this morning, Mr. Mark Robinson, who's our group chief executive officer, and Mr. Glenn Scarrett, who is our group chief financial officer. After the presentation, there should be about 30 minutes where we'll be giving opportunity for investors and analysts to ask questions, and the operator will provide instructions for the Q&A as he just did at the start of the call, provide those instructions at the end of the call. Now turning to slide two, you'll see a disclosure, and I'd like to draw your attention to the legal disclaimers associated with this presentation that are on this slide. And after that, I'd like to hand over to our group CEO, Mr. Mark Robinson.

Thank you, Meth, and good morning, everyone. I'll start with an overview of BSP and our half-year performance. Glenn will then walk you through the financial results in more detail before I return to recap our strategy and provide our views on the economic outlook. We'll then take your questions. Turning to slide five, I want to take a moment to remind you about the scale of our business, our track record, and the opportunity ahead of us in P&G and the rest of the South Pacific. BSP is the South Pacific's international bank with a significant presence in the seven countries in which we operate. In addition to our market leading role here in Papua New Guinea, We have the region's most extensive network with a leading presence across Fiji, Solomon Islands, Vanuatu, Samoa, Tonga, and the Cook Islands. When I talk about opportunity, I think about four drivers. First, we're a clear market leader across retail, business banking, and corporate institutional banking, and a footprint across the South Pacific gives us genuine scale and reach. Second, these markets provide us with a long-term growth opportunity. While each market is different, the big picture for economic growth is that it's being driven by globally significant energy and mining projects with more to come, agricultural commodities including coffee and cocoa, and abundant fisheries which are all in high demand, and of course, some of the world's best-known tourist destinations. We're also positioned to benefit from growth in financial inclusion and digital adoption across the region, with significant scope to grow customer numbers and deepen customer relationships. Third, we have a track record of profitability and delivering attractive returns. This includes 25 years of uninterrupted profitability through economic cycles, and a robust return on equity driven by disciplined execution, resilient margins, and improved risk management. BSP's financial strength is allowing us to continue to improve our competitiveness and our ability to grow through further investment technology, operational resilience, and staff capability. And fourth, we have a strong balance sheet and capital position, which gives us flexibility to support our growth and over the medium term to examine strategic options. Moving to slide six, you'll see the BSP delivered a strong start to the 2026 financial year. Highlights in the first half included continued double-digit revenue growth and further investment in the business, with a focus on long-term value creation for shareholders, our customers, and the community. Statutory net profit after tax increased 8.4% to 620 million kina or 204 million Australian dollars. This was driven by revenue of 1.89 billion kina, up 17.7%, with contributions from lending, payment services, and strong customer-driven foreign exchange earnings. In highlighting this, I do want to acknowledge that despite the underlying strength of the business, the keyness pegged to the U.S. dollar and the appreciation of the Australian dollar against the U.S. currency had a significant impact on our Australian dollar outcomes. This, of course, is a translation effect rather than a reflection of underlying operating performance. We saw an increase in operating expenses of 21.1% to 825 million kina. This is part of a planned investment for the future, which saw higher employment and technology costs in the first half as part of our multi-year modernizing for growth program. That said, we're continuing to manage costs carefully through the investment phase of the program, and our cost-income ratio of 43.8% remains within the target range of 42% to 45%, which we have. Another highlight was our return on equity at 23.9%. This continues our 20-plus year track record of an ROE above 20%. Our capital position remains strong with a capital adequacy ratio of 25.3% as at 30th of June, significantly higher than the Bank of Papua New Guinea's minimum requirement of 12%. This gives us the capacity to support lending growth and the strength to manage through volatility and economic conditions. I'm pleased to confirm that following this half-strong performance, the BSP Board has declared an interim dividend of 54 toya per share, payable on the 24th of September, 2026. Overall, we are pleased with the first half result. Revenue growth remains strong, asset quality remains sound, and we continue to generate attractive returns for shareholders. At the same time, we're investing significantly in the future of the franchise through our Modernizing for Growth program. While there is still much work ahead, we are encouraged by the progress we are making. Now, turning to slide seven. Our strategy remains consistent and focus on a small number of priorities. First, strengthening our customer franchise and deepening relationships across the group. Second, accelerating digital adoption and improving customer experience through technology, data and process simplification. Third, continuing to strengthen risk management, governance and operational resilience. Fourth, investing in our people and building a strong performance culture across the organization. Finally, driving disciplined execution and accountability. None of these priorities are new. Our focus is on executing them consistently using our cultural anchors of service excellence, risk excellence, and performance excellence to convert investment into sustainable growth and productivity improvements. I'll come back to strategy and the outlook later in the presentation. But before I hand over to Glenn, I want to show you the progress we're making through are modernizing for growth program in an important area are digital channels. On slide eight, you can see the continued growth in the use of digital and self-service channels. Digital adoption continues to accelerate with customers increasingly choosing mobile, internet banking, and FPOS channels. ATM transactions have also increased following investment in our new ATM fleet and improved functionality. This continuing shift to digital and self-service channels benefits both customers and the bank. Customers gain greater convenience and accessibility, while BSP benefits from a more efficient operating model and lower long-term costs to serve. With that, I'll hand over to Glenn to talk you through the financial results in more detail.

Thank you, Mark, and good morning, everyone. It's my pleasure. to take you through our first half results. Starting on slide 10, BSP delivered a strong first half result with revenue growth, profit growth, and continued investment in future capability. Group revenue grew 17.7% to 1.89 billion kina. This was supported by lending growth, continued customer activity across transactional banking, and strong customer-driven FX. Operating expenses increased 21.1% to 825 million kina, reflecting continued investment in the group's modernising for growth program, people capability and technology platforms. As expected, we are currently in a period where investment growth is running ahead of revenue growth. This reflects the planned delivery phase of our MFG program, and Capability Uplift, with the majority of benefits expected to be realised progressively over the next several years. As investment activity moderates and benefits are captured, we expect operating leverage to improve and positive jaws to re-emerge towards the latter stages of the program. Statutory NPAT increased 8.4% year-on-year to $620 million TINA. As Mark highlighted earlier, the difference between our Kina and Australian dollar growth reflects currency translation rather than underlying operating performance. Turning to slide 11, this highlights both the quality of our revenue growth and the operating leverage in the business. Non-interest income increased as a share of total income to 38%, driven by strong customer-driven FX income. FX income actually increased to 23% of total income driven by higher commodity prices and increased activity from our exporting and importing customers. Fee and commission income increased 11.5% reflecting customers continued preference for BSP as their primary transactional bank supported by ongoing growth in digital channel usage and transaction volumes. Operating expenses increased 21.1% to 825 million kina, reflecting a planned uplift in investment across our people, technology and customer capabilities. Modernizing for growth contributed 62 million to operating expenses during the half. Importantly, this investment is already supporting the delivery of new customers, digital and operational capabilities across the group while positioning BSP for future growth. As Mark highlighted earlier, despite elevated investment levels, operating profits still grew 15.1% to 1.06 billion kina. The important point is that we are funding our investment program from a position of earning strength. Revenue growth continues to support the significant investments we are making across the group, while still delivering attractive returns for our shareholders. Turning to slide 12, Operating expenses increased 21% in the half to 825 million kina. The increase was predominantly driven by employment expenses up 22% and administration non-salary technology and other costs also up 22%. The key point is that this cost growth reflects a combination of deliberate investment and operating demand across the business. Despite this elevated investment and cost environment, BSP maintained a cost-to-income ratio of 43.8%. That is up 130 basis point on the prior corresponding period, but remains comfortably within our target range of 42 to 45%. So while expenses are higher, they are being managed within our operating framework and are supporting the investments we are making in capability, customer service, technology and growth. Turning to slide 13, This slide provides more detail on our modernising for growth investment. Total MFG investment spend was 138 million kina in the first half, comprising 77 million kina of capitalised investment spend and 62 million kina of expensed investment spend. This compares with 99 million kina in the first half of 2025 and 152 million kina in the second half of 2025. Importantly, we are already delivering practical improvements that customers and staff can see and use today. We've established our business bank with investment in digital banking, credit decisioning, and relationship management capability to improve customer experience, turnaround times, and support growth. On the self-service side, we've deployed more than 210 new ATMs and 10,000 new FPOS terminals. These investments support merchant transactions, improve customer access, and reduce reliance on in-branch transactions over time. We have also continued to invest in our physical network across P&G and the South Pacific, with new and refurbished branches strengthening our distribution network. We have enhanced back office operations, including new technology to improve call center responsiveness and customer support capability. and we have continued to expand digital financial inclusion with BSP OneTalk Wallet now in use by more than 278,000 customers in P&G. The key takeaway is that we are already seeing tangible customer and operational benefits from the program while continuing to build the capabilities that will support growth, efficiency and shareholder value over the longer term. Moving to slide 14, asset quality remains strong and continues to reflect the resilience of our customer base and the disciplined way we manage credit risk. While bad and doubtful debt expense increased modestly during the half, delinquency rates improved and remain low by historical standards. Importantly, we are not seeing any broad-based deterioration in portfolio performance. Credit quality remains stable across retail, business and corporate lending, with customer performance broadly consistent with our expectations. As always, we remain disciplined in our approach to credit underwriting and portfolio management. Our focus is on sustainable lending growth while maintaining strong risk standards through the cycle. Overall, we remain comfortable with the quality of the portfolio and believe it is well positioned for the current operating environment. The strength of that portfolio performance is also reflected in our provisioning position, which I'll cover on the next slide. Slide 15. Our provisioning position remains strong and reflects BSP's longstanding conservative approach to balance sheet management. During the half, collective provisions increased modestly in line with our lending growth. Provision coverage metrics remain broadly stable and impairment charges as a percentage of loans were largely unchanged from a prior period. Our objective is to maintain a resilient balance sheet that can support customers through both favourable and more challenging economic conditions. Based on the current portfolio performance, we remain comfortable with our provisioning levels and believe they remain appropriate for the risks within the portfolio today. On slide 16, this details that our balance sheet remains strong, reflecting robust lending and continued deposit growth. Total assets grew 16.2% and deposits grew over 17.8% in the half, reflecting strong franchise momentum and customer confidence in BSP across all markets. Importantly, demand deposits remain an important part of our funding mix, supporting a low cost of funds. Gross loans grew 8.6%. Lending growth continues to be fully funded by deposit growth, maintaining a strong liquidity and funding position. The bottom line is we are growing the balance sheet selectively and with discipline. Slide 17 shows that we have a stable and balanced loan book composition. Business loans increased moderately during the half, reflecting continued growth in customer activity. and the early success of our newly established business banking proposition. Retail mortgage growth reflects housing demand across our Pacific markets, which remains strong. Personal lending also saw strong growth, underpinned by consumer spending, refinancing, and seasonal factors supported by stable employment. Overall, the portfolio mix remains robust. Turning to slide 18, Our key ratios highlight the quality of BSP's business. Return on equity of 23.9% reflects strong operational performance and disciplined capital management. Capital adequacy remained very strong at 25.3%, significantly above regulatory minimums in providing capacity to support growth, absorb volatility and maintain balance sheet flexibility. Return on assets of 2.8% decreased by 20 basis points, but remains attractive, demonstrating balance sheet efficiency. We continue to generate attractive returns while maintaining significant capital strength and balance sheet flexibility. And turning to slide 19, this chart tells the story of BSP's long and consistent record of profitability. Since 2001, we've grown net profit after tax from 19 million kina to a record 1.17 billion kina in 2025, while maintaining returns on equity above 20% throughout that period. This track record has endured through the mergers and acquisitions that built our market-leading regional footprint. We have also endured periods of disruption, including the impact of COVID-19. Along the way, we established BSP Life P&G in 2017 and listed on the ASX in 2021. 2025 was a record year for group profits and we've carried that momentum into our record first half in 2026. On slide 20, we continue to deliver attractive and sustainable shareholder returns. As mentioned, the board has declared an interim dividend of $54 per share, up 8% on the first half of 2025. The board continues to balance attractive shareholder distributions with the need to maintain a strong capital position and continue investing in the growth of the group. Our 10-year total shareholder return on the PNGX of 366% reflects disciplined capital allocation and consistent earnings delivery over the cycle. The board remains committed to balancing attractive shareholder returns with ongoing investment in the franchise and maintaining a strong capital position. The first half of 26 demonstrates that BSP can grow earnings, invest in future capability, protect asset quality and continue to deliver attractive returns to shareholders. And with that, I'll hand back to Mark to talk through the outlook.

Thank you very much, Glenn. Turning to slide 22, I want to touch on the broader economic backdrop across our markets, which is one of moderating growth in the short term with major projects potentially poised to drive another cycle of significant growth over the medium to longer term. At present, we're experiencing steady economic growth in Papua New Guinea and the South Pacific, driven by the region's growing middle class and increasing regional trade, investment, and economic integration, which is supporting demand for banking services. However, short-term risks remain to the growth outlook, particularly El Nino, which is already affecting coffee and other agricultural output, as well as production at some major mining projects. Of course, there are also continuing risks for energy with the ongoing Middle East conflict and tourism faces headwinds from cost of living pressures and higher transport costs. While we haven't seen any material impact from these short-term factors that would cause us to change provisioning, we are continuing to monitor their impact on our customers. Over the next five to seven years, we are much more bullish with a super cycle of major projects on the horizon. including potential Papua LNG and the Ping Yang LNG projects and the Wafi Gold Copper and Gold project. We estimate these three PNG projects alone are worth over 100 billion kina or 30 billion Australian dollars. And we know from experience these projects drive outsized economic growth, which creates significant opportunities for BSP and businesses throughout the PNG economy. Turning to slide 23, I do want to mention two major developments that we've announced recently, starting with the Rugby League World Cup. In July, we're pleased to announce that we will be the exclusive banking partner of the 2026 Rugby League World Cup to be hosted in Australia, New Zealand, and Papua New Guinea during October and November. The tournament features teams from five BSP countries, Papua New Guinea, Fiji, Samoa, Tonga, and the Cook Islands. We would not normally highlight an individual sponsorship and results presentation. However, we view this as a strategic investment that aligns strongly with BSP's brand, our communities, and our markets. We believe it provides an opportunity to strengthen brand awareness, deepen customer engagement, and support customer acquisition opportunities across the group. Second, last week, we announced plans to develop a new purpose-built headquarters in Port Moresby. supporting our continued growth and creating a landmark commercial development for Papua New Guinea's capital. When completed in the early 2030s, the campus style headquarters will bring together BSP's 2,500 Port Moresby based employees who currently work across seven office locations. Designed to support the future of banking, the new campus will provide a modern workplace that enhances collaboration, innovation and operational resilience. It's a plan that reflects our long-term ambitions and commitments to Papua New Guinea. And we're already underway with rationalizing some of our existing properties in Port Moresby, starting with the sale and lease back of our Waigani head office. I'd like to mention that we're recently honored to have Fiji Prime Minister Rambuka join us to celebrate BSP Life's 150th anniversary. Founded in Fiji in 1876, BSP Life is not only one of the South Pacific's most enduring businesses, it is also the oldest company within the BSP Group. BSP Life's longevity is a testament to the strength of its people, its purpose, and the trust it has built with generations of customers across Fiji and the wider Pacific. Turning now to slide 24 to close. In summary, BSP has delivered a strong first half result with growth in revenue, earnings, and dividends while maintaining sound asset quality and a strong capital position. We are pleased with the performance, but we are certainly not complacent. We continue to invest in technology, customer experience, operational resilience, and our people because we believe these investments will strengthen BSP's competitive position and create long-term value for our shareholders. We enter the second half with momentum, supported by a resilient balance sheet, leading market positions across the region, and attractive long-term growth opportunities. Finally, I would like to thank our nearly 5,000 staff across the South Pacific. Their commitment to our customers and communities continues to be the foundation of BSP's success. Thank you for joining us today, and we look forward to your questions.

Thank you, Mark. I will now turn over to the operator for questions. And if you don't get to all your questions in time, we will come back to you in the coming days and we'll post any material questions on our website, if any. Operator, over to you. Thank you.

If you wish to ask a question via the phones, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then 2. If you're using a handset, please pick up the handset to ask your questions. We'll pause for a moment to allow any questions to enter the queue.

For participants to dial into the conference call, we have received some written questions in advance and I'll read them now. I think the first one is about the cost to income ratio and it reads, the cost to income ratio is rising as BSP moves further into the investment phase. When does it peak and when should it start to decline?

Thanks, Beth. I'll take that question. We expect investment spending to peak over the next two years as major technology customer and operational initiatives move through the delivery phase. As projects are completed, the mix should progressively shift from build and implement to benefits realisation, simplification and productivity. We do, as I said, we do expect that investment spend to peak in the next two years. Importantly, the CTI, we don't anticipate our CTI moving outside of the 42% to 45% target range.

Thank you, Glenn. I have another question as well, a second written question. I'll read that out. Foreign exchange income is now 23% of total income. How sustainable is it? And is this simply a cyclical resource project tailwind?

FX income benefited from strong commodity prices and higher activity from our exporter and importer customers. We don't assume that the current growth rate continues every period. Obviously, that flow is influenced by various project activity and marketing conditions. However, BSP's regional network and customer relationships provide a very strong underlying franchise. It's probably important to point out that our result for the half was also supported by a 15.4% growth in net interest income. and an 11.5% growth in fee and commission income in keener terms. So earnings growth was not solely FX-driven, but well diversified.

Thank you for that context, Glenn. I'll turn back to the operator to see if there are any questions from conference call participants.

Once again, to ask a question via the phones, please press star 1. Confirming at this time we're showing no phone questions. Thank you.

With that, that brings us to an end of this investor presentation. I'd like to, on behalf of the BSP Group, thank our investors for their continued support, and we look forward to a great second half of 2026. Thank you very much.