Treasurer says government in 'final stages of negotiations' with ANZ to maintain bank's Pacific presence
ANZ Bank has the largest Pacific presence of any Australian bank. (ABC News: Keana Naughton)
In short:
The treasurer told the Australian Institute of International Affairs that the government is about to strike a deal with ANZ Bank to secure its "continuing banking presence in the Pacific".
Despite a large network in the region, ANZ has struggled with low profitability in the Pacific, leading it to close more than 10 branches there in the last five years.
What's next?
The government has vowed to keep Australian banks in the Pacific — in part because it does not want Chinese banks to fill the vacuum.
The federal government is about to strike a sweeping new agreement with ANZ Bank to ensure it does not join the exodus of banks from the Pacific — although it is not yet clear what the terms of the deal are.
ANZ has by far the largest Pacific presence of any Australian bank, with 19 branches across nine countries in the region.
But like many Western banks, it has struggled to implement tough new international banking standards in the Pacific, while struggling with low profitability across its network, leading it to close more than 10 branches there in the last five years.
The government has vowed to keep Australian banks in the Pacific — in part because it does not want Chinese banks to fill the vacuum — and is spruiking the in-principle agreement with ANZ as a clear strategic victory.
On Monday night Treasurer Jim Chalmers told the Australian Institute of International Affairs that the government was now in the "final stages of negotiations" with ANZ and the agreement would secure its "continuing banking presence in the Pacific".
"This will ensure ANZ's nine existing operations — from Fiji to the Cook Islands — maintain their services," he said.
"The deal we're working on is another big part of our efforts to keep communities and economies connected, and finance flowing in our neighbourhood."
Jim Chalmers says the deal would ensure ANZ continues to have a presence in the Pacific. (ABC News: Matt Roberts.)
In a statement, a spokesperson for ANZ confirmed the bank was in discussions with the Australian government regarding its "shared commitment to providing ongoing banking services in the Pacific Island region, including Timor Leste".
"We play an important role in connecting customers to the growing trade and investment opportunities in the Pacific Islands region, as well as providing links into our home markets of Australia and New Zealand, and across our international network in Asia, the Middle East, Europe and the United States," they said.
"We welcome the opportunity to provide ongoing access to banking services in the Pacific Island region with the support of the Australian Government."
In July this year ANZ chief executive Shayne Elliott said the bank was having a "conversation" with the Australian government about how it could help the company "be more sustainable" in the region.
"If we were there [in the Pacific] purely commercially, we would have just shut it down," he told Reuters.
"We have a higher obligation but … I have an obligation to my shareholders. It's their money at risk."
The looming deal is a key part of a broader government push to arrest a decline in banking services across the Pacific.
For example, last year the government convinced Westpac not to press ahead with a sale of its operations in both PNG and Fiji.
The government is still scrambling to ensure Nauru is not left without a bank when Bendigo pulls out of the Pacific island nation next year.
It is also been working with the United States government and multilateral institutions such as the World Bank to help Pacific nations deal with the rapid drop in correspondent banking ties — including through providing funding to improve digital infrastructure and law enforcement.
Mr Elliott told a Pacific banking forum convened by Australia and the US in July that while ANZ deeply valued its Pacific business, the region needed to simplify rules and regulations for international banks.
"The Pacific Islands region is difficult because the economies are smaller compared to other markets and doing business in the region can be complex," he said.
"While it's important that each country charts its own course, this can create costs for businesses that want to operate across the region."
The federal government says its main focus is on trying to ensure Pacific nations do not become economically disconnected from the global economy.
But officials are also conscious of the strategic implications of the exodus of Western banks and are worried that Chinese state-owned banks could fill the gap, handing some key strategic advantages to Beijing.
The Bank of China is already on the brink of getting a green light to open a branch in Port Moresby and has signalled it might be willing to fill the breach in Nauru as well.