Our

1 Our MissionKey Features of BSP StrategyTo create value for our stakeholders by delivering innovative and cost effective financial Focus on Sales & Service High Performing Teams Operational ExcellenceProfitable Growth Our VisionTo be the leading financial services provider in our chosen marketshelping customers, staff, shareholders and communities s Report 4A Brief History of BSP 6 Board of Directors 8 Group CEO s Report 10 Strategic Business Unit Reports 12 Corporate Governance 21 Historical Summary 29 Contributions by BSP to PNG

2 29 Overseas Branches & Subsidiaries 31 Financial Statements 39 Dir ectors Report 40 St atements of Comprehensive Income 42 St atements of Financial Position 43 St atements of Changes in Shareholders Equity 44 St atements of Cash Flow 45 Not es to the Financial Statements 46 Independent Auditor s Report 81 Shareholder Information 85 Directors Information 88 Management Teams & Directories 91 Corporate Social Responsibility 101 BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 20162 INTEGRITYPROFESSIONALISM LEADERSHIP QUALITY PEOPLE TEAMWORK COMMUNITY We are honest, committed, trustworthy and reliable in our dealings withour customers and each commit ourselves to continual self-development to achieve standardsof excellence in our inspire, we change, and we live our values.

3 And lead by are committed to excellence whilst striving for continuous improvementin products and respect and value our people and our work with, and for, each other; we progress respect, value and support the communities in which we BANK OF SOUTH PACIFIC LTD ANNUAL REPORT 2016 BRANCHSUB-BRANCH78 Branches56 Sub-Branches351 Agents499 ATMsAPRA Disclaimer:BSP is not authorised under the Banking Act 1959 (Commonwealth of Australia) and is not supervised by the Australian Prudential Regulation Authority (APRA).

4 BSP s products are not covered by the depositor protection provisions in section 13A of the Banking Act 1959 and will not be covered by the financial claims scheme under Division 2AA of the Banking Act ,343 EFTPoS4,194 StaffBANK OF SOUTH PACIFIC LTD ANNUAL REPORT 20164 BSP Group audited profit for 2016 was million, an increase of 21% from 2015. Total assets have grown 14% to conditions were benign overall in the countries in which BSP operates, reflecting the slow recovery in the global economy that has continued over the period.

5 Low growth has again featured in emerging markets in Asia, led by China. Some commodity prices, such as oil have shown some recent improvement and the demand for minerals like iron ore, coal and copper have strengthened in recent months, following some resurgence in economic activity in the Asian markets. PNG s commodity based economy influenced by natural gas, minerals and agriculture has tracked a low growth path in 2016, with continued low export revenues. In the non-PNG economies, there has also been low to moderate growth, exacerbated especially in Fiji by Cyclone Winston early in 2016.

6 Notwithstanding this, tourism activity has been resilient, and agriculture has also remained stable. The latest Standard and Poors assessment of BSP continues to be at the maximum rating possible for a Papua New Guinea based entity (B, negative outlook for the short term). BSP successfully completed the purchase of the Vanuatu branch of Westpac in mid- 2016. In November, a system integration exercise was successfully undertaken and completed in the Solomon Islands, to fully merge the co-existing business operations.

7 In both instances, the activities were carried out predominantly by BSP teams, with limited assistance from external s 2016 results reflect the growing prominence of the non-PNG businesses. 20% of profit and 26% of balance sheet assets are now sourced from outside of PNG. The recently acquired businesses have shown very good progress, and I am pleased to repeat my earlier statement that BSP is truly a South Pacific Bank in every sense, committed to partnering with people, businesses and governments in supporting economic opportunity and development across the region s of financial service lines has continued.

8 The Life insurance business in Fiji has once again produced good results in 2016, with continued profitability improvements and balance sheet management. The Asset Finance operations which commenced in Fiji late in 2014, and in PNG at the start of 2015 have yielded results above target during 2016, supported by good market share growth. The sustained growth of BSP in PNG as well as across the South Pacific region, and the ongoing development of the portfolio of non-banking financial services assets continues to demand more and more in the way of improvements in BSP Group s systems, procedures and staff capability.

9 An initiative to identify a new core banking system for the Group across the region commenced in 2016 and activities will intensify over the coming years. BSP s leadership development program has expanded with the addition of the 2016 cohort group including participants from regional and non-banking businesses. Changes in legislation in the banking industry and related regulatory requirements have continued in 2016. Regulators in PNG and across the region have introduced new prudential standards covering areas such as corporate governance, anti-money laundering and anti-terrorism funding.

10 Compliance reporting requirements have been enhanced in certain areas. BSP has responded appropriately to ensure it meets the specified requirements. One of the requirements is that the Board Audit Risk Compliance Committee (BARCC) has been split into 2 committees, one for Risk and Compliance, and the other for 2016, two long serving highly respected directors retired from the BSP Group Board. Thomas Fox departed from the Group Board after 23 years of uninterrupted contribution, 22 of them as deputy chairman.