Thank you for standing by, and welcome to the Kina Securities Limited full year 2021 results. All participants are in a listen-only mode. There will be a presentation followed by a question- and- answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Greg Pawson, Chief Executive Officer and Managing Director. Please go ahead.
Thank you, and good morning, everyone. Thanks for joining us this morning. I'm calling you from a very dreary, stormy Port Moresby. I hope you're all well, particularly those of you that are in Queensland at the moment. With me here in Port Moresby, I have Chetan Chopra, who's our Chief Financial Officer, and on the line we have Samantha Miller, who's our Executive General Manager for Corporate Affairs and Investor Relations. Sam's based in Brisbane. Look, what we thought we would do. I'm sure KSL is probably not familiar to most of you that are on the call. This is the first time actually that we've done something like this, as opposed to speaking directly to brokers and our main shareholders.
What we thought we would do is just, I'll start with a bit of an executive summary, a broad overview of where we've come from, our journey, and where we've got to today. Chetan will talk about largely about the financial numbers for 2021 as opposed to the prior financial year. I'll then talk about our plans for this year, for 2022. This is year three of our five-year strategic plan. Sam will talk a little bit about her relatively new portfolio and touch on some of our objectives in relation to ESG. Then we'll open up for questions at the end if everybody's comfortable with that. Look to begin, we've made solid progress transforming and growing the company as we move into our year three of our current strategic planning cycle.
Several key highlights from a financial perspective. Our NPAT compound annual growth rate has been year-on-year greater than 25%. Our footings have grown now to just be over PGK 5 billion. Quite a significant milestone for the company. Through that, again, our compound annual growth rate in terms of organic loan growth has been in excess of 20% per annum. We've grown our customer base from 25,000 3 years ago to over 185,000. Much of that organic customer growth and obviously coming as a result of acquiring ANZ's retail business here in PNG in 2019. Our foreign exchange revenue's up from PGK 20 million to over PGK 60 million in 2021, and we've been averaging an ROE of around 17%. In terms of non-financial, the ANZ acquisition was a very complex program of work.
It took us 18 months to complete that, but we completed it on schedule and on budget. Through that process, we also acquired a 15% stake in Nationwide Microbank, the largest financial inclusion organization in PNG. We did a non-renounceable rights issue of AUD 80 million back in 2020, and we're on track to return our earnings per share to pre-capital raising levels within 18 months, as we promised. We've made significant enhancements to stabilizing our core banking network and infrastructure, including digital assets and channels. We've maintained our leading position and a key point of differentiation for us here in PNG. As PNG's leading fund administrator and fund manager, securing revenues in excess of PGK 30 million. Our bank to market maker business model evolution is on target. Our digital revenues from zero start in 2020 to over PGK 26 million in 2021.
Service agreements in place with Maybank and TISA and more recently, NCSL, for the use of a service model of our infrastructure. Partnership agreements in place with new parties using our internet payment gateway, Eversend, Xero and YuTru, which is the new PNG Digital ID Bureau. Well underway and all to materialize in 2022. Finally, quite an ambitious culture transformation program that is well progressed and on plan as well. As we move into 2022, I think it's fair to say there's a lot to do. We're on our pathway to realizing our vision of being the most dynamic, progressive and accessible financial services organization in the Pan Pacific region. At a high level, our ICT program includes a considerable number of BAU initiatives for remediation, stability and performance. We're on track and going well.
Additionally, we're in the process of putting in an API middleware integration to our other systems across the organization, which will enable us to be considerably more innovative and a lot more flexible and nimble in terms of the launch of new technologies that we have lined up for this year. It'll move away from an over-reliance on our core banking system. We're also working, this is very exciting, with Amazon, who are coming to PNG on a cloud offering and hosting and continuing to mobilize and implement our data management strategy with the system, with the assistance of the Asian Development Bank. Very proud of the fact that we are PNG's leading digital bank and certainly one of our programs or key program of work for us to continue that innovation over the course of 2022.
One of the things we're conscious of and that we have achieved, I think in the past, is that we must continue to leverage our strong organic growth opportunity and the positive market sentiment towards our brand in PNG to build our profits and capital base. For those of you that don't know the financial or the banking sector, particularly well in PNG, it's dominated by one bank, Bank South Pacific, who have around a 70% market share. We've just moved into second place at about 16%. Then you have the two Australian banks, Westpac and ANZ, who have made it very clear that given the opportunity, they would actually exit the market. Clearly that's presenting a lot of opportunities for us. We're excited about a number of new offerings that will come to fruition this year.
The Kina Private Bank Exchange, which is our independent EKYC payments platform for remittances, and Pei Beta, which is a market first new domestic market payments platform as well, that we'll launch in the second half of 2022. Off the back of the opportunity that we had to acquire Westpac's specific businesses, despite the fact that we terminated the SPA due to the inability to get the PNG ICCC to approve the transaction. We have made quite a good and solid investment in Fiji around incorporation and banking licenses. It's a market that we're looking at in particular to build out our ICT support. Some good talent, some good infrastructure. It remains quite a challenge for us here in PNG to source quality ICT talent in PNG, and at a comparatively high cost.
We think that developing a compelling test-and-learn innovation hub to explore future growth opportunities with easier access to venture capital with our development partners and tax incentives available in Fiji would be a good plan to explore. It'll also assist us, we think, to deliver more operational efficiency and a budgeted 5 basis point reduction in our cost-to-income aims for over 2022. However, at the same time, we're gonna continue to strengthen our technology leadership and our people capability and continue to broaden our investor profile and market coverage and explore other options potentially as a source of future capital. All of this is underpinned by a bold aspiration to move into the ASX top 300 listed companies by market cap by 2025.
That's a little bit of a storyboard on where we've come from, where we're at today. I might just hand to Chetan to talk about the 2021 results.
Thanks, Greg. Good morning, everyone. My comments will be obviously in addition to the preliminary final report that we have already lodged on the ASX, as well as the investor presentation that's there. What I'd like to do is actually take you all through some of the key financial areas that we normally, you know, track as part of our key parameters. In 2021, we saw KSL deliver an underlying profit of PGK 96.2 million. This is the after-tax profit on an underlying basis. This was a 27% growth on PCP. This has confirmed our delivery that the base business is still very strong and it's poised for future growth, and especially into 2022.
The financial results are having impacted, as you know, by the one-off separation of, as a consequence of the Westpac transaction. This resulted in a final impact of statutory impact of PGK 70.8 million. The dividend, the directors have announced a dividend of PGK 0.18 per share for the second half, which converts to AUD 0.07 and making it a cumulative dividend for the full year at PGK 0.268 , which converts to AUD 0.10. This is a payout of 80% on our underlying profits, which is within our policy, and the directors are confident that the company has adequate capital to support this payout and maintain adequate capital growth.
In terms of the business metrics that we look at, I'd like to just highlight a few areas which are obviously the key ones that we track and which probably underpin the strength of our business. Revenue has continued to grow in this environment, which has been a tough environment impacted by COVID as well as other business disruptions in PNG. We still grew the revenue to PGK 334 million. This was up on the basis of a 3% growth in net interest income and also 19% growth in FX and a 26% growth in fees and commission incomes, primarily from digital channels, which was a really strong growth, which is one of our key strategic areas, up 65% year-over-year.
The phase timing of the loan drawdown with the budget was a major contributing factor to some matters that impacted our performance. Because 40% of our loan drawdowns occurred in the final quarter. We're obviously looking at that as a key area to see how business moves going into 2022. That impacts all our ratios, including the cost to income ratio, as you'll appreciate. Net profit after tax on an underlying basis, as mentioned, was slightly about the adjusted plan. We are at 95.6%, and it is on market expectation, and it reflects the revenue growth and controlled operating expenses and improved management of the loan portfolio.
As you know, that was offset partly by administration expenses because in 2019 and 2020 and 2021, we continued to have the impact of the COVID-19 pandemic, particularly in areas of employee transport and hospitalization costs of staff who are impacted by it. In terms of the loan book, the loan book grew by 21%. This is a milestone year for us because we've crossed PGK 2 billion in our loan book. Though as mentioned earlier, typically for each year, substantial part of this growth comes in the second half of the year. As mentioned, this obviously positions us good for the next year in 2022. For the full year, we were up PGK 544 million, as you would see in the Appendix 4E, with 29 new connections to the bank.
As part of our strategy when we in 2021 and 2020 when we did the annual, and we raised this additional capital, which allowed us to engage with large corporates and larger transactions. We have brought on several new signature commercial and corporate transactions, which include Oil Search. There are a number of other large companies, large global operations, who are now considering Kina Bank as a definite alternative to other banking arrangements in PNG. The home loan book also saw a very positive growth of 16%. We do expect that this is gonna be a 15%-28% year-on-year growth, and that will be maintained.
On the flip side, obviously, the deposits which you got to maintain because we have an internal ratio that we maintain of, you know, 66%-70% of a loan to deposit ratio. We grew our deposit base at the same time, and a milestone achieved in terms of deposits was at PGK 3 billion. So we are pleased to say that we have seen a total growth of up to PGK 5 billion now in our asset base. It was also pleasing to see that we had a 28% growth in our low non-current account balances, which means obviously the cost of funds has remained within manageable areas, which is a key focus area for us.
We have 1,600 new business accounts which have been onboarded, which have also got current accounts and with us, and retail customer growth is saving with us. With nearly 20,000 customers, with over 15% increase in the retail customer base. All this has been underpinned by what Greg spoke about, the digital initiatives and EKYC and other efforts that we are doing. NIM is a constant focus area for us. As you know, the target range for NIM that we have set ourselves is between 6%-8%, which is reflective of the happenings in the market. We do expect that we will end. In 2021, we were at the lower end of 6%, at slightly above 6%.
This reflects the mix of increased lending to the corporate sector, the strong deposit growth to maintain the loan to deposit ratio, because naturally, we've got to make sure that the deposits come out in line to manage that ratio. That impacted the cost of funds in the last quarter. We looked at a strategy to grow FX revenues, which meant we obviously had to work with larger corporate and have them come on board. This obviously saw a significant impact on our business growth because foreign exchange revenues have grown by 90%. Really the cost to revenue benefit was significant. While interest earnings saw a 21% increase overall, 69% of the growth was recorded in the second half, and we expect that to really reflect in the 2022 results.
The other pleasing area and the impact that we track is our revenues from our digital channel, that we always have had the aspiration to be the leading digital bank in PNG. In 2021, saw tremendous market sentiment reflecting that Kina has ultimately transformed into a very strong digital proposition. Our digital revenue saw a 65% increase to PGK 23.4 million in 2021. As a comparative in the PNG market, this is the highest growth by any bank that operates in PNG. A key area of monitoring by both all shareholders as well as ourselves is the asset quality. This has been a significant focus area, and particularly with the COVID environment and the impacts of IFRS 9, this area was heavily concentrated on in terms of focus management.
We have got a lower impairment charge in the current year. The lower charge is a consequence of increase in provision levels in 2020, which obviously we took up the IFRS 9 provision. On a comparative basis, it looks lower, but it is reflective of the quality of our book. Our asset quality has been doing well. It's strong. A greater focus on robust and disciplined relationship management has underpinned this. We have maintained strong credit follow-up processes by the credit team, which has helped us deliver a manageable low impairment charge, which reflects the strong asset quality that we have. The other area that we've obviously focused on is the ROE and the NIM, and the EPS. We are at market expectation on an underlying basis.
On an underlying basis, our return on equity is at 15.7%. The statutory was obviously impacted because of the Westpac acquisition. However, we know and are confident that the business will recover in the next six to eight, twelve months. We always mention to the market that post the annual, we will take 18 months to recover from, on the ROE and the EPS, and I think we are on track to achieve both those matters in 2022. The other key area that we do focus on is capital management. Capital management is a key area for us, and we have always looked at keeping it within the 20%-34%, and capital adequacy remains at that level.
This is to ensure that we are well capitalized for future growth initiatives, and in particular, the strategic objectives that we have for 2022. The total leverage ratio is also in line with the requirements of the bank, Bank of Papua New Guinea. We are at way ahead of the minimum requirement of 6% in terms of the leverage ratio. The key parameter that Greg also spoke about was the cost to income ratio, and this has been maintained. It's flat at 58% compared to the prior year. There were necessary expenses incurred as part of our Q3 initiatives, where we also had a dual objective of making sure that our systems and processes were completely in line so that in case the Westpac acquisition did go through, we would be able to manage that business and integrate it very effectively.
As a consequence, obviously in Q3, we put significant effort in improving our digital platforms, AML and CTF processes, credit systems. We have developed an FX platform, and we have enhanced our channel network systems. This has resulted in us maintaining our cost to income ratio, and the benefits obviously will flow on into 2022. I think those are the key highlights that I wanted to really stress on. If there are further questions, I'm very happy to take any questions at the end. All in all, the financial performance on an underlying basis has been extremely positive. I think the market has also. The local market and the domestic business operating environment has strongly shifted back.
Thanks, Greg.
Okay, thanks, Chetan. I thought now I'll just give you all a brief overview of our strategic initiatives that we have as part of our 2022 business plan for this year. There's several of those, and I'll just touch on them very briefly. There's a little bit of an outline in the investor pack, and there's also an update on the sort of economic situation here in PNG. Obviously, the big shining star at the moment is the approval by the government of the Papua LNG project. That's quite a significant $15 billion project, which is expected to start in the latter part of this year, which I think will be a nice and well-received boost for our economic growth here in PNG.
Of the several objectives that we've got planned for this year, the first around core banking is expanding our regional banking model. It's fair to say a considerable amount of our growth continues to come out of the two key markets, Port Moresby and Lae. Over the course of 2022, we'll be expanding commercial centers into Mount Hagen, Lae, Goroka, Madang and Kokopo as well to leverage the growth that's happening in those larger provincial centers outside of Port Moresby. We're excited about that. A huge focus on business development. There's really only one bank in those locations dominating, which is BSP. We'll bring, I think, some well-received competition into those locations.
There's also three other secondary provincial locations that we're planning to go into as part of our distribution strategy this year, and that'll be done in conjunction with Maybank. I mentioned earlier, we have a 15% stake in the largest financial inclusion bank here in PNG. They have over 450,000 customers across the country, quite an extensive nationwide branch network. They're in some locations that we aren't, and the intention is to co-brand in Alotau, Popondetta, and Nipa, Enga Province. The other exciting thing for this year is launching three new segment propositions, Prime for our home loan customers, Prime Plus, which is a targeted employer referral scheme. We'll be launching Kina Private Bank before the end of this quarter, leveraging the significant capability we have as part of our funds administration and investment management business.
Digital banking continues to be a major focus for us. Digital onboarding at scale includes what we call EKYC, which is digital Know Your Customer onboarding. It's something very common in Australia, but rather unique here in PNG. We'll be the first bank to launch that in the first half of this year. A game changer in terms of the ability to onboard literally hundreds, if not thousands of customers digitally through our partnership with the two largest provident funds, superannuation provident funds here, Nambawan Super and Nasfund. We effectively have access through our funds administration to data on every Papua New Guinean that's working and employed in the country. Finding ways to leverage that over the course of this year is gonna be critical for us.
Continuing the strong growth that we've had in payments, continuing to expand our payments platform, Pei Beta, I talked about earlier, which is our marketplace, independent markets, marketplace payments platform. Our POS network, we'll be adding another 1,000 terminals to that. We've just had agreement for the Internal Revenue Commission and PNG Power Limited as part of a tender process. They'll be using our payment gateway for online payment. A partnerships platform. I touched on this earlier. We have allowed some smaller financial services institutions in PNG to utilize our infrastructure in our payments network. They include MayBank, TISA, the Teachers Savings and Loan Society, and Nasfund Savings and Loan Society. We're about to onboard Nambawan Super Savings and Loan Society as well.
Rather small organizations, but it's a fee for service model, so another potentially lucrative income stream for us that will build over time as those organizations get bigger. That's a key focus. We've got an exciting partnership with Xero, the New Zealand-based software accounting organization to allow our commercial and corporate customers access to their platform, which again will be a key area of differentiation for us this year as well. Diversified investment bank is a key focus. We're enhancing our investment management platform. We're in the process of exploring and scoping that, offering a number of alternate retail investment opportunities here in PNG. It's a very unsophisticated market. There's virtually no secondary corporate bond market, so we're looking at ways to potentially leverage that opportunity at the moment.
Our deployment of our corporate banking and advisory unit, that's well on track at the moment, and we're putting in place a fund for the SMEs here in PNG in partnership with Business Link Pacific in New Zealand. A lot of work happening around continuing to build out our people capability and leadership development across the organization. Some challenges at times, getting the right talent, particularly in technology here in PNG. We're exploring a number of options to continue to build out that capability. I talked earlier about our Pan Pacific strategy as well. The first phase of that will likely be the establishment of an ICT center of excellence in PNG. Why PNG? We went through the process of incorporating in PNG.
It's not a market that we have an absolute desire to go to, obviously, because of its size and scale, but with limited size and scale. The advantages from an ICT perspective far outweigh that of PNG, and that they're on the Southern Cable, a 5G network. Their cost of technology infrastructure overall is about a quarter of what it is in PNG. We think there's an opportunity to better leverage that. They have some terrific talent, particularly in the ICT space there, that will help address some of the gaps that we have. A really good place, I think, to use as a test and learn digital innovation hub for things that we might wanna do in the future as well, outside of our core market here at PNG.
The other key piece around that is formalizing our environmental and social governance strategy that will be completed by the end of this year. On that note, I might just hand over to Samantha Miller to give you an outline of what that's going to be all about. Sam, I think you're online.
Thanks, Greg. Appreciate it. Morning, everyone. Thank you so much for joining us here at KSL this morning. I've taken on the role over the last three weeks of EGM, investor relations, corporate affairs and ESG. The remit of my role is to really broaden our reach across the ASX and build some depth in our investor base. I know many of you on the call here are strong supporters, and we thank you for that. I'll start to build out that portfolio and engage more frequently with many of you over the coming months. Also included in that portfolio is the ESG remit that Greg just spoke to. Many here in Australia will probably realize the importance of ESG, especially across the ASX-listed companies, and we'll take an approach that will help us and our communities in PNG.
A good example of that is what Greg's mentioned of microfinance banking. Many people in PNG are unbanked, and having 450,000 people, giving them access to financial services is a really large impact that you generally wouldn't get in Australia. That's something really exciting that we're going to launch over the next year as well. I look forward to speaking to you, many of you soon. Thanks, Greg.
Okay. Thanks, Sam. All right. Well, that sort of concludes, I think most of what we wanted to talk to. If you haven't had the opportunity, I would encourage you to have a look at the full year investor presentation. It's probably the most, or I think is the most comprehensive investor pack we've put together. A lot of information in there. A lot about our strategy and more so our objectives moving forward as well. I'll leave it there and open up for any questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. We'll pause a moment for any questions to register. Once again, to ask a question, please press star one. Your first question comes from Jim Grigio from Private Investor. Please go ahead.
Thank you, Greg and the team for all the tremendous work you've done in PNG. Much appreciated. I've lived in PNG and understand the higher challenges that doing business there. I'm just an individual investor that have invested since the IPO. My question to you, sir, and your team is, you're humming along well, growing organically, lots and lots of initiatives. Could you help me understand the rationale of going after the Westpac acquisition versus just keep doing what you're doing so well, please? Thank you.
Thanks, Jim. It's Greg, and thank you for your continued support. Very good question, and I think one that we've spent a fair bit of navel-gazing on, since we terminated the two sale and purchase agreement. Look, I think the rationale behind it really was scale. You know, it was an opportunity to get that scale much quicker. We were aware that Westpac were very keen to exit the Pacific. I don't know if you're aware, but in my previous role as the regional head for Westpac, I led the divestment of their five smaller Pacific Island nation businesses to Bank South Pacific.
We'd always been aware that they had an intention to sell, and actually we were talking to them at the same time we were talking to ANZ about potentially acquiring ANZ retail franchise here in PNG, which ended up being a much, much better proposition for us. I think one of the challenges for Westpac is that quite a large percentage of their business here is in dividends, capital that they've been able to unlock and remit back to Australia, which artificially inflates the price. For us, that just wasn't part of the negotiation. We didn't really want to acquire Westpac Fiji. It came with the transaction. Westpac wanted to sell both businesses in one line.
The only piece really that we were interested in with respect to Westpac was its PNG business and its corporate portfolio. To put that into context for you, we are slightly bigger than Westpac and ANZ now in PNG in terms of total funding, loans and deposits. However, Westpac are about PGK 50 million-PGK 60 million ahead of us on revenue, and all of that revenue relates to the corporate sector and predominantly foreign exchange. Now, that's obviously very attractive to us, and look, we've demonstrated that we're chipping away at that. We've now got some very good relationships with the resources sector. Asian Development Bank coming in, I think now as our third or fourth largest shareholder, have been extremely helpful in helping us tap into that sector.
I think our foreign exchange growth year-on-year, you know, 19% up and what we're forecasting this year is a reflection of that. However, it was really back to the case that Westpac really wanted to sell both businesses. I talked a little bit about the ICT capability in Fiji, and as we got closer to that transaction, we thought that that would be really attractive. It'll help reduce some of the costs we have in PNG and also improve our capability overall. Were we disappointed that it didn't go ahead? I think yes, in terms of the break cost that we forfeited, and you would have seen that in terms of our statutory performance. Very disappointed. At the end of the day, as you've highlighted, the organic growth opportunity for us continues. We're leveraging it.
It's interesting, I didn't touch on this earlier, but in 2021 we had a record year in terms of new lending, around PGK 550 million. That was 56% up on the previous years. Of the 79, I think 80 new commercial and corporate connections we onboarded, 50% of those were from Westpac. Going back to our original strategy, which was about really targeting, and ANZ falls into this as well, targeting their best customers, and moving them across to us. Hopefully that answers your question.
Yes, again, thank you for the tremendous work you and everyone does at Kina for us.
Thanks, Jim. Appreciate that.
Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Pawson for closing remarks.
All right. Well, again, just to reinforce, Sam's comments, thank you for your attendance this morning. This is the first time we've actually had a broader conference call to talk about our results and our strategy. We appreciate you making the time and effort to join us this morning. Please don't hesitate to reach out to Sam as the first point of contact if we can provide you with any more information. Appreciate your time. Thank you.
Thank you.
Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.