ANZ, Australia's largest lender in the Pacific Islands, is in discussions with the Australian government to address the sustainability of its operations in the region. 

CEO Shayne Elliott says increasing risk management costs have rendered some of ANZ's Pacific businesses financially unviable. 

“If we were there purely commercially, we would have just shut it down,” Elliott said during an interview at the Pacific Banking Forum in Brisbane.

Australia this week pledged increased investment to support banking systems in Pacific Island countries, which have seen an 80 per cent reduction in US dollar-denominated correspondent banking relationships from 2011 to 2022. 

This withdrawal has heightened concerns over China's growing influence in the region through various security and financial agreements.

Westpac cancelled plans to sell its Pacific unit last year. Bendigo Bank, the sole bank in Nauru, announced its departure in 2023 but delayed the exit following intervention. 

Neither bank has revealed whether it is in similar discussions with the Australian government.

Treasurer Jim Chalmers suggested more are involved, telling reporters; “We have been actively talking to all the major Australian banks, to let them know how important a continued Australian banking presence in the region is to the government”.

Elliott noted that the talks with the government have not yet covered specific measures to enhance profitability but suggested potential cost-cutting strategies like standardising anti-money laundering (AML) and know-your-customer (KYC) checks. 

“Could we share, to lower the cost, the way we run things like AML and KYC?” he asked.

In line with efforts to bolster financial resilience, Australia announced an additional AU$6.3 million investment to develop secure digital identity infrastructure and improve compliance with anti-money laundering and counter-terrorism financing requirements. 

The initiative aims to address the challenges Pacific Island nations face due to the Western banks' de-risking to meet stringent financial regulations.

At the Pacific Banking Forum, US Treasury Secretary Janet Yellen emphasised Washington's commitment to supporting the Pacific's economic resilience, including enhancing access to correspondent banking. 

US Treasury Undersecretary Brian Nelson highlighted the importance of financial connectivity in the region.

“When correspondent banking relationships dwindle, the consequences can be substantial

Western banks' retreat has been twice as rapid in the Pacific compared to the global average, driven by regulatory compliance challenges. 

Experts suggest that these actions undermine financial stability in Pacific Island nations, potentially creating a void for China to fill.

China's strategic moves in the Pacific include signing significant defence, trade, and financial deals, with the Bank of China recently exploring opportunities in Nauru.