ANZ will pay an undisclosed annual fee to the Australian government in return for a “limited guarantee to ANZ in connection with its current Pacific operations for 10 years.”
ANZ expects the guarantee to commence in the second half of 2025, and is subject to enabling legislation.
The maximum amount of the guarantee is A$2 billion.
“The Australian government “assesses the probability of the guarantee being called as very low” ANZ said on Friday.
ANZ’s 2024 annual report shows the bank had $1.7 billion in net loans and advances and $3.6 billion in deposits in its Pacific division, representing 0.35 per cent of the bank’s footings.
The cash profit for ANZ in the Pacific last year was $60 million, down from $71 million in 2023.
This profit represents 0.9 per cent of group profit.
The bank’s net interest margin in this division was 3.88 per cent, the highest for any division – so you would think ANZ is already pricing appropriately for risk.
Not that these regional risks are elevated at present, with impaired assets in the Pacific $45 million last year.
The guarantee for ANZ, which the bank will at least partly pay for, is an element in the Australian government’s soft power diplomacy in the Pacific in the face of increasing assertiveness by China toward the (mostly) impoverished nations in the region.
ANZ could easily sell its Pacific division, and almost certainly it would be sold to a major Chinese bank were ANZ to choose to do so. Thus there must be an implied (or secret) understanding between ANZ and the government that the bank will not do so over the 10 years covered by this guarantee.
ANZ’s Pacific division spans operations in nine countries; Cook Islands, Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga and Vanuatu.
ANZ said it will invest a further $50 million in the region to support modernisation of its operations.
The bank has also committed to maintaining its existing fee-free operations for international money transfers and remittances, these being a material component of national income in a number of Pacific countries.