In the euphoric post merger years of Bank of South Pacific Limited (BSP) with the Papua New Guinea Banking Corporation the focus and attention of management was on converting the branches to new systems and all the cultural and physical challenges related to a merged organisation of over 2000 staff in a developing country.

Two years into the merger it was apparent that a number of critical cost and organisational issues were emerging. In an address to the staff in January 2004 the CEO of BSP said:

      x      2003 expenditure was K30m above prospectus forecast
      x      Cost to income ratio had climbed to 80%
      x      Capital infrastructure levels were too high
      x      Forecast merger synergies had not been realised
      x      Operating profit is in decline
      x      The Board have not accepted the operating plan of management

BSP had turned to Fist Commercial Limited (FCL) to assist it to transform the Bank.

FCL designed an operating structure based on customer segmentation and core support areas. The Bank immediately made appointments of Heads of each of these strategic business units and this group became the Steering Committee for the Transformation Effort.

A team of 15 consultants were assembled and began to give attention to processes, layers of management, HR policy, distribution and head office overheads. The consultants worked through a Program Office and with the steering committee that met monthly. The program was an intense 90-day effort that provided outstanding results. Two layers of management were removed, a 24-month rolling budgeting process was implemented, funds transfer pricing policies were adopted, capex controls were strengthened. Some processes were found redundant and disbanded, a staff share scheme was implemented and an executive share option scheme was designed. Credit scoring for consumer and small business lending was developed and applied. Staff numbers were reduced by 347 while productivity improved.

The Steering Committee was disbanded and an Executive Committee formed that met weekly and continued to closely monitor projects and budget outcomes.

The 2004 annual report indicated a substantial improvement in key performance indicators and in 2005, the first full year after Transformation the expense to income ratio had fallen to 54%, return on assets had doubled and return on equity reached 35%. The dividend paid in 2005 was 14 toea compared to 4.3 toea in 2003. The share price had quadrupled to K3.30.

The CEO made mention of the outcome in 2005 and acknowledged the work of FCL by saying: “The Transformation 2004 project has been a resounding success. This is clearly evident from the various key performance indicators including the significant increase in profitability, the improvement in the cost to income ratio and the Bank’s strong balance sheet structure”