The United States and Australia’s senior officials have pledged to assist Pacific Island countries in addressing the sharp decline in correspondent banking services to prevent the Chinese Communist Party from taking advantage.
According to Nikkei News, Australian Treasurer Jim Chalmers announced on Tuesday (July 9) that $6.3 million Australian dollars (approximately $4.2 million USD) will be allocated to address the reduction of correspondent banking services in Pacific Island countries, including enhancing compliance with anti-money laundering and counter-terrorism financing.
Chalmers stated at the Pacific Banking Forum co-hosted by the United States and Australia, “The Pacific region is severely impacted by the global trend of financial institutions reducing or withdrawing banking services, with the withdrawal rate of correspondent bank relationships being the fastest in the world.”
He added, “The reduction in banking services has affected the ability of Pacific Island banks and entire countries to access cross-border payment services, connect to the global financial system, and provide funding for projects crucial to economic development and essential services.”
Reuters reported that Shayne Elliott, CEO of ANZ Bank, stated that concerns about China’s expanding influence in the region are growing as Western financial services withdraw from the Pacific region.
Elliott mentioned in an interview with Reuters that ANZ Bank is the largest lender in the Pacific region, operating in nine island nations from Fiji to the Cook Islands. The bank plans to maintain its presence in the region, but increasing management risks make it challenging for these operations to cover capital costs.
Elliott stated at the Pacific Banking Forum, “If it was purely commercial, we would shut it down.”
Another Australian lender, Westpac Banking Corporation, canceled plans to sell its Pacific operations last year.
The Bendigo Bank of Australia had announced in 2023 its intention to withdraw from operations in Nauru, as it was the only bank in Nauru. However, the exit plan was postponed. On the other hand, the Bank of China signed an agreement with Nauru earlier this year to explore development opportunities.
Australian Treasurer Chalmers remarked in his speech that Australia recognizes the importance of banking services in the Pacific region. He said, “We have been actively engaging with all major Australian banks to emphasize to them how crucial the ongoing presence of the Australian banking industry in the region is for the government.”
ANZ Bank CEO Elliott mentioned that discussions with the government have not yet involved specific measures to increase profitability. However, he noted that banks in the region may standardize certain services to reduce costs without relaxing risk controls.
Experts indicate that Western banks are undergoing de-risking processes to comply with financial regulatory requirements, making it more challenging for them to do business with Pacific Island countries.
Brian Nelson, U.S. Treasury Deputy Secretary, mentioned at the forum that the United States acknowledges the de-risking issues of Western banks in the Pacific region and is committed to addressing this concern.
U.S. Treasury Secretary Janet Yellen delivered a speech via video at the forum, emphasizing the importance of improving financial connections in the Pacific region.
Yellen stated, “The United States is committed to building a free, open, connected, prosperous, secure, and resilient Indo-Pacific region. A strong and interconnected Pacific region benefits the U.S. and the global economy.”
The Pacific Banking Forum, co-hosted by the United States and Australia, took place on July 8th and 9th in Brisbane. Participants included Pacific Island leaders and representatives from commercial banks, as well as international organizations such as the International Monetary Fund (IMF).