The Independent Consumer and Competition Commission (ICCC) has declined authorizing the proposed acquisition of the 89.91 percent share of the Westpac Bank PNG Limited by Kina Securities Limited (KSL).
The decision means Westpac can no longer sell its PNG and Fiji banking operations to Kina
ICCC Commissioner and Chief Executive Officer, Paulus Ain stated that the acquisition would have adverse effects on competition in the country and provided nine issues that he said warranted the commission declining authorization of the acquisition:
- No Independence of Banks – The ICCC is not satisfied that Kina Bank and Westpac, as East West Commercial Bank, would operate as separate banks because of common ownership.
- High concentration of Market – the current highly concentrated market would remain the same with only two banks in operation.
- High Barriers to Entry – the acquisition would further heighten barriers to entry and reduce competition with only two banks in operation.
- Risk of “Coat-tailing” – the highly concentrated market resulting from the acquisition would create the environment for one bank to “coat-tail” the already established dominant bank, removing the incentive for competition.
- Fewer choices for Retail Banking Services – There will be no countervailing power in banking services and therefore will reduce the already limited power that customers having in choosing service providers.
- Increase in prices and profit margins – The ICCC is concerned that the proposed acquisition would likely result in prices and profit margins increasing.
- Limited Service Substitutes – Non-Financial Institutions (NBFIs) provide some banking services, but have limited geographic spread and most are dependent on banks to facilitate certain transactions.
- Little to no market growth – the acquisition would further decrease growth given that the number of banks has already decreased over the years.
- Westpac still a source a competition – Westpac Bank’s plans to divest its PNG business will create significant competition in the coming years, something that would not have happened had the acquisition been authorized.
“The ICCC is not satisfied that this proposed acquisition would not have, and would not be likely to have, the effect of substantially lessening competition in the relevant markets for the reasons outlined in its determination,” said Mr Ain.
He further said that the detriments to the public would outweigh the benefits due to less competition and increased barriers to entry.
ICCC also raised that with only two banks operating in the market, they could charge higher loan interest rates and paying lower return rates to depositors, which would impede capital accumulation and limit national progress.
Mr Ain added that even with advancements in technology and product design and delivery, there will be no true competitive pressure on higher lending rates and lower interest rates on deposits, and less attention would be given to customer queries.
“Based on the above assessment and reasoning, the ICCC has decided to decline authorization for the proposed acquisition of the 89.9 percent of the shares in Westpac bank PNG Limited by Kina Securities Limited.”
The authorization process began in March when KSL registered its interest with the ICCC, with public consultation of the application conducted soon after and ending in April.
In July, the ICCC released a draft determination proposing to decline the authorization and welcomed submission and comments until August, when it was closed and all comments and submissions were taken into account to reach the final determination announced yesterday.
