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ANZ Bank (ASX:ANZ) has entered a 10-year arrangement with the Australian Government to offer banking services in the Pacific, including fee-free transfers using ANZ products.
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Or, in other words: Canberra is paying ANZ to stay in the region for the next ten years.
In the background, here, is the fact ANZ CEO Shayne Elliot noted halfway through last year the company’s Pacific region operations had become unprofitable.
Western banks have been leaving the region in recent years – driven by the same economics that make banks abandon country towns – but Canberra’s willingness to provide up to $2B to ANZ over ten years is part of a larger strategy.
And that strategy, between the written lines, is obvious: Soft geopolitical power.
In recent years, Australia’s cabinet representatives have been openly discussing the need to ensure Australian relationships with our Pacific counterparts remain strong to combat what is perceived as growing Chinese influence in the region.
(In fact, this has been of concern since 2015, when the Australian Defence Department released a paper on the issue. Since then, not much has changed.)
But last year, not long after Elliot stated that the Pacific region was unprofitable, concerns have been rising surrounding Chinese banks’ proliferation in the Pacific region.
It’s not hard to see why this could make Canberra twitchy. Banks are the linchpin of any economy – and who you bank with, over time, can easily create relationships.
To put it simply: Australia’s worried if the only ATM on Pacific Islands is branded HSBC and the like, that will eventually build loyalty to Chinese brands instead of Australia’s.
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Another way of putting it is that banks, after all, wield great power over both business and governmental spheres of life.
That the $2B deal confirmed on Friday, March 14, is part of a soft power strategy is evidenced by the fact that part of the deal is to have ANZ continue offering financial literacy services in the region.
“As part of NAZ’s commitment to improving the financial wellbeing of Pacific people and communities, ANZ will continue to promote and encourage financial literacy through its MoneyMinded program,” the bank wrote on Friday.
As for ANZ management, they’re clearly just happy to get something of a bailout, letting them avoid the fallout of any Pacific region exit. For at least ten years. Elliot noted on Friday, however, the guarantee is “not material.”
Without doubt, backroom negotiations were at play on this one.
ANZ last traded at $28.29.sh.
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