Australia moves to keep its banks in the Pacific

Australia will move to stem the exodus of its banks from the Pacific Islands, the country’s top economic official said, as concerns mount that China could bolster its influence by filling in the gaps.

For years, Western banks have been shuttering branches throughout the South Pacific, citing political turmoil, wafer-thin profits and the high cost of doing business.

State-owned Bank of China has indicated it is eager to step in, stoking worries that Beijing could expand its already considerable commercial clout in the Pacific.

Treasurer Jim Chalmers said he was close to inking a deal that would keep Australia’s ANZ Bank open in strategically important nations such as Fiji, Vanuatu, Solomon Islands and Papua New Guinea.

“For too long, Pacific ties have been taken for granted. We’ve done our best to reverse that,” he said in a speech on Monday night.

“A big part of that has been about banking. Taking the time, and doing the work, to guarantee the future of finance in the Pacific.”

ANZ Bank confirmed it was in discussions with officials, although it was not clear what this deal would look like or if the Australian government would subsidise its Pacific operations.

Bank of China has been exploring options in Pacific microstate Nauru, which earlier this year severed diplomatic links with Taiwan in favour of Beijing.

The Nauru government signed a memorandum of understanding with Bank of China in March.

Australia’s Bendigo Bank, currently the only foreign bank operating on the island, has said it would pull out by mid-2025.

Papua New Guinea’s government has also welcomed Bank of China, saying it would work to help it gain an operating licence in the country.

Australia and China are locked in “a state of permanent contest in the Pacific”, Australia’s foreign minister said earlier this year.

Analysts say the exit of Western banks opens another avenue for China to expand its reach at the expense of Australia and allies like the United States.

“We would be concerned if there were nations operating within the region whose principle objective was advancing their own national interest,” Australian Financial Services Minister Stephen Jones told a forum in July, when asked about Chinese banks stepping in.