Good morning, everyone. Thank you for joining us today as we present Kina Securities Ltd H alf-Yearly results. It's my pleasure to share our strong performance and the key drivers of growth in the first half of 2025. I'm joined today by our CFO, Johnson Kalo, and by our recently appointed Chief Investment and Strategy Officer, John Polinelli. Johnson and John will present further details on our key performance metrics and strategic outlook, respectively, and will be available for questions at the conclusion of the presentation. As many of you will know, Johnson has been with Kina since 2019 and was formerly CFO and Deputy CEO for the Bank of South Pacific. John Polinelli may also be a familiar name to some of you.
In his role of Head of Corporate Advisory for Morgans Financial Limited, he supported several of Kina's strategic initiatives going back to 2015, starting with KSL acquisition of Maybank PNG, KSL ASX listing, and thereafter KSL acquisition of ANZ, which completed in 2019. As we remark on slide four of the investor deck, 2025 is a very important year, not just for Kina , but also for PNG . This October, Kina celebrates its 40 years of PNG, having grown from a finance company to the second largest bank today, where we take an active role in the PNG, whilst adding more competition to the banking sector. PNG celebrates 50 years of independence, an important milestone for the country.
Turning now to slide seven and half one, 2025 results. We're pleased to report a statutory net profit after tax of PGK 57.7 million, reflecting a 37% increase compared to the same period last year. This strong growth was underpinned by a 10% rise in total revenue, alongside a favorable reduction in our income tax rate from 45%- 40% this year, and with a further reduction to 35% to come in 2026. Our loan book showed robust growth, increasing 16% year- on- year. This growth is a testament to our commitment to lending responsibly and effectively, and to Kina's established position as the challenger bank and the bank for PNG, with business lending up 22% in the half.
As shown later in the presentation, the loan book growth is also reflected in our market share, which grew 110 basis points, or 7.7% in the period, to 16.9% market share. Additionally, we delivered a net interest margin increase of 30 basis points, or 5%, now standing at 5.9%. This reflects our ability to actively manage our funding mix in line with market dynamics. Non-interest income grew 19%, now representing 55% of total revenues. This is a clear proof point in our strategy to grow non-interest income, delivering an efficient use of capital. This growth was buoyed by significant increases in foreign exchange income, which rose by 37% year- on- year, driven by higher commodity prices and increased foreign currency inflows. Our digital channel revenues also grew by 15%, reflecting increased transactional activity across our payments, internet banking, and bill payment platforms and products.
Furthermore, our funds management services performed exceptionally well, with a 24% increase in revenue driven by retail and wholesale wealth management, showcasing our ability to develop products that meet the evolving needs of the market and clients. Turning to slide nine, the first half also saw a strong return on equity growth of 390 basis points, or 30%, to 17.1%, up from 13.2% from the first half of 2024. Additionally, our earnings per share was up 36% to 20 TOYA per share. In recognition of our strong performance, the board is pleased to declare an interim dividend of A$0.045 and PGK 12.6 TOYA, representing a 13% and 19% increase, respectively. This dividend reflects our commitment to delivering value to our shareholders with a payout ratio of 63%. We believe that returning profits to our shareholders is essential as we continue to build a sustainable and profitable business.
I'll now pass over to our CFO, Johnson Kalo, who will take you through some of our key performance metrics in further detail. Thank you, Johnson.
Thank you, Ivan. I'll take us through from slide 13 to about 20. Turning to slide 13, the loan book growth of 16% was driven by business lending, which was up 22%, which cemented our position as the bank for business in PNG. We actively managed our personal lending book in the half, reflecting our risk-aware, responsible lending practices. On slide 14, the 30 basis points growth in net margin is accompanied by 1% year-on-year growth in net interest income, which has been achieved in the context of the following: actively pursuing investment income as yields are prime and maintaining stable returns on a growing loan book, pricing competitively to deliver growth in the deposit book through the half to support asset volumes, initiating a more proactive and targeted write-off approach to rent that in a small number of long outstanding loan accounts, necessitating some loan interest write-off.
In terms of asset quality, the key ratios for loan provision to gross loans and non-performing loans indicate continuing sound improvement in the loan quality and stability in the core growth areas of the portfolio. On slide 15, as mentioned by Ivan, FX revenues were a standout in the half, up 37%, driven by higher inflows and commodity prices. In the same period, FX market volumes as a whole were up 20% versus PCP, highlighting the strength of our FX offering. However, we are conscious that growth rates may moderate in the second half as the PNG's fx intervention policy evolves in favor of interbank market development to support liquidity. Turning to slide 16, digital revenues were up 15%, driven by continued growth in our FPOS terminal split, Visa card issuance, and usage by customers.
In the second half, we see positive movement for our payments and digital transaction volumes. Slide 17, the wealth business or revenue growth, up 24% in the half, driven by retail wealth management, whilst underpinned by the continued performance of the funds management business, which saw funds under management increase 13.9% and funds administration with funds under administration and NEPA members, increasing 12.9% and 4% respectively. Now, a word on operational efficiency. Slide 18 shows operating costs were stable, with a 0.8% increase compared to the previous year. Our headline, or statutory cost-to-income ratio, improved, decreasing from 64.8% to 59.2%. However, on an underlying basis, when removing the fraud event from full year 2024, the cost-to-income ratio increased marginally.
This was due to an 11% year-on-year increase in our cost base, mainly attributable to administration costs, including merchant card expenses and Visa card expenses, which grew in line with digital revenues. This cost profile is influenced by the following factors. Firstly, foreign exchange impact on cost. The 7% depreciation of the PGK against the USD over the year increased local currency cost of US denominated expenses, particularly in technology and consulting services. Secondly, domestic inflationary pressures. The weakening PGK also contributed to general price increases in locally sourced supplies and services, adding pressure to baseline operating costs. Thirdly, strategic investment in expertise. Kina is making targeted investments in external advisory and technical expertise to support strategy, capability, as well as planned enhancements in technology infrastructure and operational risk frameworks, which are critical enablers of long-term efficiency, resilience, and growth. Lastly, leadership transition costs.
Temporary overlaps in senior executive roles, including the CEO transition, impacted in the first half of 2025 costs. Sensible and appropriate cost controls aligned to our growth strategy will continue to be deployed moving forward. As reported to the market in February of this year, over the medium to longer term, we will deliver improvements in cost-to-income through operational efficiencies and digitization. PNG market evolves and in preparation for the next five-year growth strategy out to 2030, investment in talent and strategic capabilities will continue in the second half of 2025, as stated during our AGM in June. Despite these investments, our workforce size will remain largely flat across 2025 as we commence a program of uplifting operational efficiency that also delivers improvements in customer and employee experience.
Shown on slide 19, our asset quality continued to demonstrate sound quality in the half, with market arrears down 26.7%- 1.1%, demonstrating the ongoing prudent lending and robust risk management practices at Kina. We maintained a strong capital base with a capital adequacy ratio of 17.3%, well above regulatory requirements and maintaining KSL well-capitalized status as defined PNG regulations. This solid foundation not only positions us favorably for continued growth, but also supports our commitment to responsible lending practices. Our total assets have grown by 4% to PGK 5.4 billion, driven primarily by our lending assets, which now constitute 57% of our overall asset base. This growth in lending reflects our strategic focus on expanding our market presence while maintaining the quality of our loan portfolio. Importantly, sufficient capacity exists to maintain this growth profile.
I'll now pass to our Chief Investment and Strategy Officer, John Polinelli, who will present our strategic outlook.
Thanks, Johnson. Turning to slide 23. As we look ahead, we're currently working to finalize our strategic plan for 2026- 2030. Key to this are the recent appointments to drive our execution capabilities, particularly in the areas of strategy and innovation. Looking forward, our strategy over the next five years will focus on four core pillars: fostering organic growth within our existing business by prioritizing customer experience, targeted customer and product segmentation, and optimizing product and portfolio profitability. Secondly, expanding our wealth management offering to complement our core banking operations, green shoots of which are already starting to show, particularly in our retail wealth management business. Next, pursuing inorganic growth initiatives, emphasizing income diversification, scalability, and enhanced capabilities, maximizing shareholder value. Lastly, optimizing our capital planning to ensure our financial resources are aligned to bolster stability, deliver returns, and create enduring stakeholder value.
We are confident that these core pillars will position us for sustained growth and profitability in coming years. As we navigate the evolving dynamics of PNG's banking market, we remain focused on refining our operations and advancing digitization initiatives. These efforts are critical for adapting to customer needs and ensuring that we maintain our competitive position as PNG's challenger bank. Connecting with our communities and continuing to invest in our team members and workplace culture will continue to be hallmarks of our strategy moving forward. As seen on slides 24 and 25, we've included some recent highlights from the first half of this year. Looking forward, we anticipate that growth in pre-tax earnings will continue in the second half of 2025, driven by increased revenues in both lending and non-lending operations.
However, as Johnson mentioned, we are observing changing dynamics in the foreign exchange market in PNG, particularly as the PNG adjusts its intervention policies, reducing total volumes of its market interventions in favor of encouraging interbank market practices. As a result, we may see some moderation in FX market volumes and therefore revenue growth in the short term. A Treasury and Financial Markets team led by Nathan Winti remain well prepared to adapt accordingly. In the medium to long term, the commencement of major PNG LNG projects, particularly the TotalEnergies Papua LNG project, is expected to bolster business sentiment and economic activity in the region. We are optimistic about the opportunities this presents for KSL and all our stakeholders. I'll now hand back to Ivan. Thank you, Johnson and John. Turning to slide 26.
In summary, the first half saw continued market share gains across both lending and deposits, as Kina delivers on its strategy, delivering market-leading solutions in line with customer needs. We saw continued growth in non-interest income as Kina aligns growth and capital optimization initiatives. We've invested into technology, leadership, and technical expertise, which are critical enablers of long-term efficiency, resilience, and growth. We saw a record first-half revenue impact and interim dividend, demonstrating the underlying momentum in the business, the quality of the loan book, and robust risk assessment. We have a strong capital base, with headroom to maintain our current growth profile. In closing, I'd like to express my gratitude to our dedicated team members, the leadership of our executive team, and the unwavering support of the board. Their commitment and hard work are instrumental in achieving our goals and driving our success.
To our customers and shareholders, thank you for your continued trust in KSL . Together, we're poised for the promising future, and we look forward to continuing to share our progress with you. I'll now pass back to the moderator for questions. Thank you.
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 are on a speakerphone, please pick up the handset to ask your question. Your first question today comes from David Fraser with MST . Please go ahead.
Morning all. Can you hear me okay?
Hi David, we can. Thank you.
Great, thanks Ivan. First one, I've just got a couple of questions and I'll jump back in the queue. First question, just talking on FX and the revenue growth in the second half. Could you just elaborate on that a bit more?
Thanks for the question. I think as stated by Johnson and John, we're seeing a change in FX intervention practices by the central bank, the Bank of PNG , where associated with the IMF program over the last 18- 24 months, regular market interventions support liquidity. That is now evolving in favor of interbank market dynamics. As such, what we see the potential of in the second half is a little bit of variability about FX liquidity volumes and potentially some aspects of margin management, particularly for those aspects of FX audit books which were traditionally supported by PNG interventions.
Okay, I might have to take this offline. Second question, just I guess you're looking at your balance sheet. I'm obviously still in a very strong position, but your Tier 1+ Tier 2 has come up a wee bit at 17.3%. Could you just give us an update on where you are on your Tier 2 bond issuance? I think it was around about PGK 200 million. I guess the follow-on question from that, on our numbers, and I suspect most people's numbers in the market, your earnings growth reflecting market share growth, growth in the system, growth in PNG, and the potential for additional FX income coming through, particularly once the resource projects come online. If you maintain your current payout ratio, the dividends would obviously grow materially. Is there any thought on what you're going to do with your payout ratio?
First question, where you are on the Tier 2 debt issuance, and second one, could you explain what's happening with the payout ratio?
Thanks David. It's John Polinelli speaking. I'll take the first one with regard to the bond and Tier 2, and then I'll hand over to Johnson to take your second question there. On the bond, that's a project that I've taken responsibility for at the moment. As you can appreciate, this is the first time that any instrument of this form has been issued in PNG. We are well advanced in the design phase and understanding the operating environment and requirements, and we are due to start our engagement, we have formal engagement with the relevant regulators as we go through this process.
We will keep the market informed, but it is well advanced, and it is the first time, however, that any instrument like this has ever been issued in this market. We are going through the process of engagement and drafting and drafting new rules, I suppose, as things develop. Things are well advanced, and we will update the market as things progress in that aspect. I hand it over to Johnson.
Thanks John, and thanks for your question David. The payout ratio is, I mean, that's really a question for the board in the first instance. You'll notice that we've maintained our ratio between 60%- 80% over the last several reporting cycles. We feel that at the moment that's a comfortable range to have adopted.
You'll also notice, I suppose, that we're sort of traveling towards the lower end, I suppose, as our growth starts to take hold and the need for capital also becomes probably a little bit more prominent than it has in the past. We are addressing that also by working towards the bond issuance. Yes, the dividends will be up constantly considered. We don't expect to move too far away from our current payout ratios, but the market will definitely be informed if there is a material change taken.
Okay, thanks very much guys.
The next question comes from Richard Coles with Morgans Financial . Please go ahead.
Okay guys, Richard Coles from Morgans Financial Limited. Just a question on a couple of questions. You've obviously seen an improving NIM trajectory. I'm just wondering how much of the sort of improved rates you've seen in Treasury bills has washed through. I mean, is the direction of NIM still up from here? How do we sort of think about that?
Yeah, there's a couple of dynamics at play as we've outlined in our presentation and also in the deck. The first one is yes, the yield increases are washing through a little bit. We've seen a little bit more of that as our capacity has improved and our deposit book has grown. The other side of that, of course, is that we have had to be competitive in the market for our deposits as our asset growth has taken hold. The cost of funds has come through as well. That's again at play on the NIM. Notwithstanding, our NIM has increased from 5.9 average in the last reporting cycle to 5.9 now. We expect cautious optimism is probably the word that I bandy around. We expect stability and probably some growth.
Some improvement next half as well?
Yeah.
Okay.
Some slight improvement, I think, but we know it's difficult to manage, obviously, in a PNG, and I'm sure everybody appreciates the volatility that's attendant here.
Yeah, fair enough, understandable. Just understanding like your digital revenue streams are really safe, strong stream that we're sort of, we really like. Just understanding where are you at in regards to the market opportunity still remaining for that sort of digital growth? I mean, you know, is it still, is there still plenty to go there? Like how do we think about that sort of digital revenue opportunity on a three to five year view?
Yeah. Thanks, Richard. I'll take that one. Look, we see continued growth opportunity in digital revenues, particularly in areas associated with payments. There are many forms of payments from merchant POS to cards to e-commerce, internet payment gateway, bill payments and the like. We feel like we have been a strong leader in the market with regard to our investment into products, platforms, and also partnerships. The market itself is evolving.
There are new competitors, new entrants into the market. It is important that we stay up to date with competitiveness in our products and platforms, and we're certainly doing that. It also notes that the market itself is continuing to grow as well in terms of the economic growth in PNG.
Yeah, no worries. I'll just answer the question that was obviously asked by the previous analyst. Yeah, just a bit confused what you're saying about FX. I understand that it sounds like a structural change in the market and the way the government's going to be intervening. Can you give us, you know, obviously that's a pretty volatile line of business that you've done $51 million this half, $37 million last half. I mean, how do we sort of think about where that's going to take that sort of that earnings revenue stream going forward? I mean, do we think that we're going back to a $37 million level? Are we going to a $20 million level? Obviously it's very hard for us to forecast that line. Whatever detail you can give us is helpful.
Yeah, thanks Richard. I think the main message we're probably trying to get across is that we would caution against extrapolating the same growth margin in half one through to half two. It is challenging to foresee exactly what the detailed impacts would be with a change in policy from the Bank of PNG, where you might move from regular weekly interventions that essentially clears the order book. Those have been very favorable conditions for the last 18 to 24 months, where that policy slows down or ceases.
Instead, to fulfill aspects of our order book that are not provided by our commercial inflows from exporters, we would need to go to the interbank market to fill that portion. If that's the case, there would obviously be a question of at what margin, with what volumes, and potential volatility. It's just a word of mild caution just around extrapolating the first half growth rates into the second half. That's all.
No worries. I guess, Ivan, just your broad view, circling back again to an area focused on by a previous analyst, your view on capital buffers required to the 12% regulatory minimum. I mean, I guess since I've covered Kina, it's always been around that sort of 20% range, and it started to edge down recently. Obviously, that also helps improve the ROE, so there's a trade-off there.
Just understanding, you know, what do you see or what does the board see broadly as an adequate buffer to the 12%? If you answered that previously, sorry, I might have missed that point of the call.
Thanks, Richard. The board has typically operated with an advertised range of around 16% to 20%. I think that acknowledges both the regulatory minimum of 12%+ also the nature of opportunities and market context in an emerging market like PNG. If that appetite changes, we would certainly advise. However, to John's update, we're actively seeking things like Tier 2 option in order to maintain our backup position within that board oversight.
No worries. Last question from me, just on the broad book, is there any pockets of concern on credit quality? Anything you're more mindful of than usual, just broadly, or is the book you're quite happy across most areas?
Yeah, thanks for the question. We're quite happy with the quality of the lending book at the moment, and as we've made some more comments in various market releases and information, we are continuing to look for incremental improvements in asset quality, which we've certainly done over the first half of this year. That was mainly associated with aged, non-performing legacy line matters.
All right. Congratulations on a good result last year.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. There are no further phone questions at this time. I'll now hand the call back over to Mr. Vidovich for any closing remarks.
Thank you very much, everyone, for dialing in today. We look forward to keeping you updated with our progress in the future. Thank you very much. Have a good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.