Thank you for standing by, and welcome to the Kina Securities Limited full-year results ending 31 December 2024. 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'll 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. Ivan Vidovich, incoming CEO and MD. Please go ahead.
Good afternoon, everyone, and thank you for joining the call today. My name's Ivan Vidovich. I was recently appointed as acting CEO and MD on the 1st of January this year, and with my appointment to the permanent position, expected to follow the regulatory approvals process prior to the end of March. Our former CEO, Greg Pawson, is continuing in an advisory capacity until the 2nd of July this year to ensure a smooth transition and handover. Greg joined me on the call today, along with our CFO, Johnson Kalo. While I'll be new to some of you, I've been with Kina Bank since 2019 when Greg and the board hired me to join the executive team as CTO, following my initial consultancy engagement with Kina on the strategy and digital transformation. I'll now hand over to Greg, who'll give a high-level overview of the 2024 results. Thanks, Greg.
Great, thanks, Ivan. Thanks to everyone online for joining us today. It's my pleasure to provide a brief overview of our FY24 results. We've delivered a solid financial performance with a 7% increase in underlying NPAT, a 13% expansion of our loan book, and further growth across our diversified portfolio. Non-interest income was 55% of KSL's group revenues for the year, which is a really solid endorsement of our strategic focus on diversifying Kina Bank's revenue base. These achievements reflect the hard work and dedication of the entire Kina Bank team, and I'd personally like to thank them for all their hard work over the past several years. It's been a pleasure working with such a great team of people and growing Kina Bank into the strong challenger brand it is today, and of course, Papua New Guinea's second-largest commercial bank.
Effective on the 1st of January this year, Ivan Vidovich was appointed CEO and MD, and I'll be working with him closely in a supporting role until the 2nd of July. I'm delighted to hand over to Ivan. He's been a well-known and trusted member of the executive management team for the past six years, knows the business incredibly well, and he'll provide further detail on our results and outlook for you now.
Thank you very much, Greg. I'm also joined by Johnson Kalo, our CFO, who will be available for questions later on in the call. In what was a dynamic global and local environment, Kina Bank delivered a strong FY24 result underpinned by strong revenue growth, which was partially offset by an increase in our cost-to-income ratio. Encouragingly, the factors driving revenue growth remain in place, and we've identified opportunities to improve our cost-to-income ratio. I will now focus on several key areas that drove this result and that also highlight our future potential. Underlying NPAT, which excludes the non-cash charge for the decline in the carrying value of deferred tax assets, was up 7% to PGK 111.9 million. This result was driven by revenue growth of 21%, which, as noted, was slightly diluted by an increase in our cost-to-income ratio to 58.6% from the prior year performance, which was 54.2%.
Kina further diversified its revenue base during the year. Net interest income was up 9%, while non-interest income surged 33% and represented 55% of total revenues for the year. This diversification reduces our reliance on traditional lending while offering opportunities to grow our margins and return on capital. Our loan book grew 13% to PGK 2.9 billion, which reflects both growth in the market and an increase in Kina's market share. Within the current market conditions, we believe this growth profile can continue. Loan book growth was achieved while also maintaining a prudent approach to risk management. Non-performing loans were 8%, and the provisions ratio was stable at 2.3%. In terms of digital momentum, we're continuing to make significant strides with our digital and channels operations, where revenues were up 27%. Kina has well-established strategic fintech partnerships to enhance our payments and lending capabilities.
This focus on digital continues to be essential for future growth and for customer experience, and ensuring we remain at the forefront of what is an increasingly competitive financial services landscape in PNG. Cost management and business efficiency are key opportunities for improvement in 2025 and beyond. While our cost-to-income ratio improved to 53.3% in the second half, the full-year outcome of 58.6% compared to the previously mentioned 54.2% in 2023 was a drag on our growth in 2024. Opportunities to improve this are being actively addressed through budgetary focus in 2025 and through business process efficiency and digitization through the medium to longer term. We are committed to optimizing our cost structure and improving operational efficiency to support enhanced profitability. We have announced a full-year dividend of AUD 0.10.
ROE was 15.7%, and we maintained a strong capital adequacy of 18.4%, which is well within both the regulatory requirements and our board's target range. This certainly leaves us with capacity to continue our profitable growth. Turning to the outlook for 2025, we expect pre-tax earnings growth will be driven by solid loan book growth, ongoing expansion of our non-interest revenues, including digital, while at the same time we will address opportunities to improve our cost efficiency. Post-tax earnings will also benefit from the decline in the tax rate for our banking operations, from what was 45% in 2024 to 40% this year in 2025 and thereafter 35% in 2026. In summary, Kina delivered a solid result for FY24, demonstrating growth across key metrics, and we still have the capability and the capacity to further grow our diversified top line while also improving our operating efficiency.
We're very confident in our strategic direction and in our ability to capitalize on the opportunities in the PNG market. Thank you very much. At this point, I'd like to also introduce Johnson Kalo, our CFO. Johnson and I are very happy to respond to any questions that you may have.
Afternoon, everyone.
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. Your first question comes from Kevin O'Connor from Ramsgate Advisors. Please go ahead. Pardon me, Kevin, your line is now live.
Are you there, Kevin? Oh, that's okay. Perhaps we'll move to.
If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We'll pause a moment to allow for any questions to register. Thank you. We do have a question from Kevin O'Connor from Ramsgate Advisors. Please go ahead. Kevin, you may have yourself on mute. Your next question comes from Bill Segal, private investor. Please go ahead.
Hello. I was wondering about the fraud we've experienced this year. At the time, you had said that there was some chance of a path to recovery. Is that still cash, or are you provisioning for there?
Yeah, thank you, Bill. Look, thank you for the question. We have included the fraud provision in the full-year FY24 result. However, as you could imagine, we are continuing with third-party recovery efforts, and we will certainly update the market as and when appropriate in that respect.
You want to assign a probability or a number or anything?
No, we're not able to provide that level of detail, but certainly, third-party recovery efforts are very active, and they're in progress at the moment.
Okay, thank you. Also, just as a note, I think this would be more accessible to people if it was available as some sort of webinar. Doing audio only is quite restrictive, especially to the younger generation.
Yeah, we can certainly arrange that.
Yeah, thank you for your comments, and we'll certainly take that on board, Bill. Thank you.
That's all from me. Thank you. Thanks.
Thank you. Your next question comes from Shane Bennan from PAC Partners. Please go ahead.
All right then, guys. Just unpick a little bit more what's going on with some of these specific lines. You mentioned the cost-to-income ratio did blow out. If I could understand exactly where that took place and what these plans are you have to rein that in. Also, if you wouldn't mind, the dynamic behind foreign exchange income was quite strong. What's that look like going into the next year or two? If you address those things, that'd be great. Thank you.
Okay, thank you for the question, Shane. I'm happy to take those. Firstly, on cost-to-income, look, there were some one-off costs experienced in FY24. The fraud incident itself had a material impact on costs. The January 10 civil unrests here in Port Moresby also increased some one-off operating and security costs in terms of the response and the recovery. Along with Kina's continual capability uplift to serve future growth, we did invest quite strongly in professional services for capability uplift in areas like tech and also risk. There are also some other costs in there, such as CEO succession, recruitment costs, and so forth as well. We did also see an increase in our USD-based tech licensing costs and services, given the depreciation in the PGK.
Look, moving forward in terms of how we continue to address the cost base and work for efficient growth, budget control is certainly a lever available to us in 2025. Moving forward, as we continue to refine the operating model, process improvement, digitization, we should expect to see some improvement over the medium to long term in that respect. In terms of FX, yes, we had quite extraordinary growth last year, and that was on the back of a couple of factors, including the onboarding of several multinational clients. Conditions were also favorable, given improved frequency and volumes around BPNG interventions. Off a very prior challenging year beforehand, those favorable conditions for FX supply continue. However, I would not expect to see an uplift like what we saw in 2024 to continue through 2025. We should expect more moderate growth moving forward.
Great. Thanks, Ivan. The other question I had is, look, I'm just back engineering some of the numbers that the actual spread between what you're paying away as an interest rate versus what you're receiving had widened about 40 basis points. Just to give some insight as to what's going on there and where that's likely to head over the course of the next 12 to 24 months.
Yeah, I can speak to that, Johnson Kalo. The spread is naturally high, and during the year, the earning assets of our business were more dominated by lending returns. As our opportunities to invest in the Treasury bills fell away, lending returns came to dominate the returns, dominate the net interest income, and therefore the margins have stayed fairly buoyant. We also had the opportunity to increase our margin returns during ILR during the year and also were quite diligent about managing our cost of funds, which has remained quite low, I think 1.1%-1.2%.
Great, thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. We have a question from Kevin O'Connor from Ramsgate Advisors.
Don't.
Please go ahead.
You don't stop it. You don't have a question for me, please?
Thank you. There are no further questions at this time. I'll now hand back to Mr. Vidovich for closing remarks.
Good. Look, thank you very much for joining today's call. I hope it was informative for you, and we'll look forward to keeping in touch. Thank you very much.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.