Australia announced on Tuesday plans to enhance investment in Pacific Island countries to bolster their financial systems, in response to Western banks cutting ties with the region due to perceived risks, while China seeks to expand its influence.
Several Western banks have terminated long-standing relationships with their Pacific counterparts or have closed operations, limiting access to U.S. dollar-denominated bank accounts.
Australia’s Treasurer Jim Chalmers highlighted the urgency of the situation in a speech at the Pacific Banking Forum in Brisbane. “We know the Pacific has seen the fastest withdrawal of correspondent banking services of any region in the world,” Chalmers stated. “At stake here is the ability of the Pacific to engage with the world,” he added, warning that large parts of the region could be cut off from the global financial system.
Between 2011 and 2022, the Pacific region lost approximately 80% of its correspondent banking relationships in U.S. dollar services, according to Australia’s Assistant Treasurer Stephen Jones, who spoke at the forum co-hosted by Australia and the United States.
To address these challenges, Australia will invest an additional A$6.3 million ($4.3 million) to help the Pacific develop secure digital identity infrastructure and improve compliance with anti-money laundering and counter-terrorism financing requirements, Chalmers announced.
Experts note that Western banks are de-risking to comply with stringent financial regulations, which has complicated business operations in Pacific Island nations, often lagging in compliance standards. This trend is undermining financial resilience in these countries.
Shayne Elliott, CEO of Australian bank ANZ, the largest lender in the Pacific with operations in nine countries, revealed that the bank is in discussions with the government about making its Pacific businesses more profitable. Elliott expressed concern about the growing Chinese influence following the withdrawal of Western financial services. “If we were there purely commercially we would have just shut it down,” Elliott admitted during an interview on the forum’s sidelines.
U.S. Treasury Secretary Janet Yellen emphasized on Monday that Washington’s focus is on supporting the Pacific’s economic resilience by strengthening access to correspondent banks.
Western nations, traditionally dominant in the Pacific, are increasingly worried about China’s expanding influence, marked by Beijing signing significant defense, trade, and financial agreements in the region.
In a notable development, Bank of China signed an agreement with Nauru to explore opportunities after Australia’s Bendigo Bank decided to exit the country. Chalmers mentioned that Australia is collaborating with Nauru to ensure the continuation of banking services there.
Recently, ANZ has exited retail operations in Papua New Guinea, while Westpac considered selling its operations in Fiji and Papua New Guinea but ultimately chose to retain them.
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