ANZ will also invest an extra A$50 million into its Pacific banking operations to maintain and expand its digital banking capabilities.
Australia will offer ANZ a decade-long loan guarantee of A$2 billion ($1.26 billion) to ensure the bank maintains the branch network across the Pacific.
This move is an apparent diplomatic victory amid growing regional competition with China.
ANZ has operated in the Pacific for more than 140 years. They will play a critical role in developing the local Pacific economy by providing jobs for almost 1200 people, investing over AUD$ 95 million in property, systems, technology, initiatives, and paying taxes over the past five years.
However, the federal government believes there is a “low” chance of getting the guarantee, and the deal would stipulate ANZ to pay Canberra an annual fee.
The bank stated on Friday that under the terms of the agreement, ANZ will also invest an extra A$50 million into its Pacific banking operations to maintain continuing services and expand its digital banking capabilities.
The move was taken as the United States and Australia are trying to improve financial connectivity in the Pacific.
Australia promised to continue to be the South Pacific’s largest aid contributor during security and economic discussions with Vanuatu, a South Pacific Ocean nation, as Canberra (the capital of Australia) considers the potential Pacific effect of US President Donald Trump’s foreign aid cuts.
Pat Conroy, minister for International Development and the Pacific of Australia, discussed with Vanuatu Prime Minister Jotham Napat.
He promised to give Vanuatu an additional $3.2 million in direct financial support after an earthquake in December that destroyed commercial buildings and took 16 lives.
Conroy stated that they are proud and happy to be the largest development partner, but due to geostrategic competition in the Pacific, many significant influences show interest in them.
He noted that Australia supported the Pacific long before China or the United States developed an interest in it.
Lowy Institute report on aid to the Pacific Islands published in November 2024 shows that China is the second largest bilateral donor to the region after Australia.
Australia and its main security ally, the United States, have been concerned about China’s growing influence in the South Pacific, and Trump’s order to reduce foreign aid has alarmed small island states in the Pacific.
Australian officials stated that Canberra was examining any potential effects on the US Agency for International Development (USAID) budget cuts made by the Trump administration.
In recent years, Vanuatu has gotten closer to China, its largest external creditor, after ten years of infrastructure loans for development, including a new president’s office last year.
Australia and Vanuatu signed a security treaty, but Vanuatu’s parliament has not yet approved it, which is already in high political turmoil.
In July 2024, representatives from both countries promised to improve the banking system in the region. Policymakers gathered with regional leaders to discuss the challenges of Pacific Island countries accessing the international financial system.
Many small Pacific countries have been struggling with the consequences of Western banks ceasing operations and winding down long-standing partnerships, which has restricted access to US dollar-denominated accounts. This void has enabled Chinese financial institutions to expand their footprint in this area.
CEO Shayne Elliott said in July 2024 that ANZ’s Pacific operations were not profitable despite having the largest network. It prompted discussions with the Australian government about the bank’s future.
The company expects the loan guarantee will go into effect in the second half of 2025.
In 2024, the Bank of China signed an agreement with Nauru, the north-eastern country of Australia, to explore financial possibilities.
The shares of ANZ are currently down 0.1% compared to a flat sub-index of broader financials.