Over $2 billion lifeline for Pacific banks amid rising challenges

Big banks operating in the Pacific will receive a decade-long loan guarantee of more than A$2 billion (NZ$2.19b) to maintain their operations and avoid relying on China.

The Australian government announced last week that it will give ANZ Bank an A$1.3b (NZ$1.42) loan guarantee to support its branches in the Pacific.

“The message we are sending to the entire Pacific family is clear – you can bank on us,” Jim Chalmers, Australia’s Treasurer, told the Pacific Banking Forum in Brisbane earlier this year.

The move aims to ensure financial stability and the continued operation of banking services across small island nations. The initiative is also seen as a diplomatic victory amid increasing regional competition with China.

Canberra's decision comes as many Pacific economies continue to recover from the impacts of the Covid-19 pandemic and face other financial challenges.

Since 2020, several Pacific island nations have been struggling with the fallout from Western banks, cutting long-term relationships and closing operations.

This has restricted access to United States dollar-denominated accounts. The gap has also allowed Chinese financial institutions to expand their presence in the Pacific.

In 2024, the Bank of China signed a deal with Nauru to explore economic opportunities, highlighting Beijing's strategic ambitions in the region.

The Bank of China is on track to establish its first branch in Papua New Guinea's capital, Port Moresby, marking its first full foothold in the Pacific

An ANZ Bank branch in Apia, Sāmoa. Photo/William West

Australia and the United States have intensified efforts to strengthen financial connectivity in the Pacific.

In July 2024, officials from Canberra and Washington pledged to boost banking services in the region ahead of the Pacific Islands Forum leaders meeting in Tonga to address the challenges PIF member countries face in maintaining access to global financial systems.

ANZ has the largest presence of any Australian bank in the Pacific, operating 50 branches across nine countries, including the Cook Islands, Fiji, Kiribati, Nauru, Papua New Guinea, Sāmoa, Solomon Islands, Tonga, and Vanuatu.

Baron Waqa, Secretary-General of PIF, says the CBI, which refers to the Citizenship by Investment (CIP) programme, is a great concern for the region.

"We had a very important and successful meeting in Brisbane last year regarding CBI," he told a media conference this week.

Baron Waqa says what the Chinese banks do in the region will probably be through bilateral arrangements. Photo/PIF

"The Australian government have committed through their Treasurer to assisting the Pacific. There are so many ways that they have been doing that. They have been talking with big banks, their banks, and others, and this work is ongoing.

"Don't forget that bigger banks like the World Bank have also come in to assist. They provided funds to make sure that we don't lose banks and to keep this work and momentum going.

"It's not easy because we are dealing with big companies that have to set their priorities in making money for their shareholders. I think we are making headway here."

Established in 1951, ANZ is one of New Zealand's 'big four' banks and the largest in the country. It has over 200 branches across Aotearoa and a 30 per cent market share.

The Australian federal government reveals that the likelihood of needing its loan guarantee is "very low," and the agreement requires ANZ to pay Canberra an annual fee.

Watch Wilson Onea of Papua New Guinea at the Pacific Banking Forum in Brisbane.

The experts consider ANZ’s presence in the Pacific vital, as it provides essential banking services to both businesses and individuals. The bank has been a key player in the Pacific for decades, offering personal and business loans, investment options, and everyday banking solutions.

An Australian government spokesperson says the loan guarantee demonstrates Canberra's commitment to maintaining a stable banking system in the region.

The guarantee will cover various operational needs and help shield the bank from potential financial disruptions.

“Our support for ANZ and its Pacific operations is a testament to our dedication to the economic well-being of our neighbours," the spokesperson says.

"We understand the critical role financial infrastructure plays in the development and stability of the Pacific region.”

Bank of China head office in Beijing. It is on track to establish its first branch in Papua New Guinea. Photo/Bank of China

Under the terms of the deal, ANZ will also invest an additional A$50 million (NZ$54.66m) into its Pacific banking operations to support ongoing services and expand its digital banking capabilities, as announced in a statement by the bank.

ANZ has reported that its operations in the Pacific have not been profitable, prompting discussions with the Australian government about its future. The bank expects the loan guarantee to take effect in the second half of 2025.

On the Chinese banks wanting "to set up shop in the region", Waqa says the forum secretariat has not received any formal approach from Beijing.

Watch Matt Canavan, an Australian National Senator, discuss the government's move to bail out banks in the Pacific.

"But I know that discussions with other leaders, they are working bilaterally and especially those feeling the pinch, the smaller economies, so to speak," he says.

"These are done bilaterally, not through our forum at the secretariat, but what the Chinese banks do in the region will probably be through bilateral arrangements."

ANZ's shares were trading early on Wednesday at 0.346 per cent lower compared to a flat broader financials sub-index (A$1 = NZ$1.093).