ANZ says in talks with Australian govt about shoring up Pacific Islands business

A pedestrian is reflected in the window of a branch of the Australia and New Zealand Banking Group (ANZ) in central Sydney

By Lewis Jackson

BRISBANE (Reuters) - ANZ bank is in talks with the Australian government about ways to make its business in the Pacific Islands more viable as an exodus of Western financial services fuels concern about rising Chinese influence, its CEO told Reuters.

ANZ, the biggest Pacific lender with operations in nine countries from Fiji to the Cook Islands, plans to maintain its presence in the region but mounting risk management costs have left those businesses unable to cover the cost of capital, Shayne Elliott said in an interview.

"If we were there purely commercially we would have just shut it down," he said on the sidelines of the Pacific Banking Forum in Brisbane.

"We have a higher obligation but...I have an obligation to my shareholders, it's their money at risk. That's the conversation we are having. What can the government do to help us be more sustainable?"

Australia on Tuesday pledged to boost investment in Pacific Island countries to support their banking systems. Between 2011 and 2022, the region lost around 80% of its correspondent banking relationships in services denominated in U.S. dollars.

China has asserted its influence in the Pacific with security agreements. Australia and the United States have said they want to bolster Western financial services there due to concerns an unwinding of such services there might leave a vacuum for China to fill.

Westpac, another Australian lender with Pacific operations, cancelled a planned sale of its Pacific unit last year. Australia's Bendigo Bank said in 2023 it was quitting Nauru, where it was the only bank, only to delay its exit, according to the Australian Broadcasting Corp.

Westpac and Bendigo Bank did not immediately respond to requests for comment about whether they were also in talks with the Australian government.

Treasurer Jim Chalmers told the event in a speech that Australia was conscious of the importance of banking services in the Pacific so "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".

ANZ's Elliott said the bank's discussions with the government had not yet covered specific measures to improve profitability, but suggested it might be possible for banks in the region to standardise some services to cut costs without relaxing risk protocols.

"Could we share, to lower the cost, the way we run things like AML and KYC?" he asked, referring to anti-money laundering and know-your-customer background checks.

"Those sorts of things can be done, but they have to be done over more than one market to be of benefit," he added.

(Reporting by Lewis Jackson; Writing by Byron Kaye; Editing by Edwina Gibbs)