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Bendigo has temporarily delayed its plan to pull out of Nauru and close the Pacific Island country's only bank after a Chinese state-owned bank signalled it might be willing to fill the void, setting alarm bells ringing in Canberra.
Bendigo Bank announced late last year that it would quit the country by December 2024, saying it wanted to "reduce complexity and simplify its business by focusing on its Australian operations".
But the announcement stirred anxiety in Nauru, with businesses, households and government agencies alike fearing they would soon be starved of essential financial services.
Officials in Canberra have been working hard to find another Australian bank to step in and replace Bendigo.
That effort intensified last week when a large delegation from the Bank of China visited the Pacific Island country to discuss "potential solutions to address Nauru's banking issues" with President David Adeang and a host of senior officials.
On Monday, a spokesperson for Bendigo Bank told the ABC that it had decided to push back its withdrawal, although they would not say when Bendigo made that decision.
"To enable an orderly transition, the bank has decided to extend its planned exit by six months to June 2025," they said.
One federal government source said the announcement would hopefully give Nauru and Australia more "breathing space" to find a solution, and that officials were pushing other Australian banks to step into the breach.
They declined to say how the government was applying that pressure, or whether it would be willing to extend subsidies or other financial support to secure an agreement.
China grows its banking presence
China is already a major lender and creditor throughout the Pacific, but recent moves by the Bank of China show how its state financial institutions are looking to embed themselves more deeply in the region.
Last year the bank opened a representative office in Port Moresby and signalled it would seek a full operating licence in Papua New Guinea, declaring that its presence would boost trade and "deepen bilateral cooperation in RMB [renminbi] settlements" — part of China's broader push to mainstream the use of its currency overseas.
Nauru's government said the Chinese bank's delegation was led by its globalisation office director Shi Wei and included "officials from the Globalisation Office, Financial Institutions Department, and representatives from the Bank of China branch in Sydney, Australia".
"Topics of discussions with government officials included banking, economy, and finance and on potential solutions to address Nauru's banking issues," it said.
One source in Nauru told the ABC that the Bank of China representatives had made it clear they were interested in setting up a branch to fill the gap left by Bendigo.
But the ABC could not reach Bank of China's representatives in Sydney to confirm whether a firm offer was in fact put on the table.
Will ANZ or Westpac step in?
Nauru's financial history is littered with scandals, and the Pacific nation became a haven for money laundering in the 1990s and early 2000s as it struggled with crippling debts.
Some Nauruan politicians – including Mr Adeang – have also been embroiled in the Getax case, with the Queensland-based company facing charges that it paid money to officials more than a decade ago to further its phosphate export interests.
Bendigo Bank only entered Nauru in 2015, just before Westpac pulled out of the country because of money-laundering concerns.
The most obvious candidates to replace it in Nauru are ANZ and Westpac, which already maintain a presence in the Pacific.
But the federal government is worried that both banks will look to close down or phase out their Pacific operations in the coming years.
Last year Westpac announced it would cancel plans to sell its operations in Papua New Guinea and Fiji.
Westpac cited the post-COVID economic recovery in both countries as a major driver for the decision. However, the federal government has also made it clear that it pressed the Australian lending giant to stay in the region.
ANZ already has a larger Pacific network than Westpac, but the bank did not provide any details of its discussions with the federal government about Nauru.
An ANZ spokesperson said the Pacific was "an important part of ANZ's international network".
"ANZ has ongoing dialogue with the Australian government concerning its international network," it said.
Nauru's 'risk factor'
Jess Collins from the Lowy Institute said Nauru was still seen as "risky" by many global banks, and the Bank of China would operate in a much more opaque manner than Bendigo.
"If the only bank of Nauru — a heavily regulated, reputable Australian bank — were to be replaced by the Bank of China, that risk factor would increase," she said.
"And Nauru's heightened risk factor may flow on to a bigger withdrawal of important banking relationships across the region."
Dr Collins also said if another Australian bank stepped in, that "would provide certainty for global regulators to bring more critical financial and potentially digital architecture into the region, leading to cheaper banking services".
While Nauru's elite remains deeply financially embedded in Australia, a switch to the Bank of China could also undermine the federal government's attempts to strike an agreement with Nauru like the sweeping Falepili Union which it sealed with Tuvalu last year.
For example, it is not clear whether Nauru would continue to use Australian currency or switch to the renminbi if it decided to take on the Bank of China as its main provider.
'A political decision'
The head of China markets research at Trivium, Dinny McMahon, told the ABC that the Bank of China might "encourage" its Nauru clients to transact in renminbi over time, but stressed it would not "force" them to do so.
"The Bank of China has correspondent banking relationships with Australian banks, which means Nauru can continue to transact in Australian dollars and the Bank of China can settle the transactions using those correspondent relationships," he said.
But he said that by "stepping into a void left by Australia and fulfilling an essential service" China was trying to "show that it's a reliable partner in a way that Australia isn't, in a region it sees as being strategically important".
"Australian banks have made a business decision to withdraw from Nauru. Bank of China — or the People's Bank of China, or China's Ministry of Foreign Affairs, or maybe both in concert — is making a political decision that filling the gap is worth the cost," he said.
Island nation's banking struggles
Tess Newton Cain from the Griffith Asia Institute said maintaining banking services in Nauru had been a "particular challenge" because of its small size, and the federal government was clearly pressing the corporate sector to help achieve Australia's strategic goals.
"In the Australian context, we would not expect government to direct a private sector enterprise like Bendigo Bank as to how they run their business," she said.
"However, given the geopolitics that are at play, it is likely that the Australian government would like to see Bendigo be part of the 'whole of nation' approach we have heard so much about.
"The focus should be on how the people of Nauru are able to access essential services including banking — this is important for households, for businesses and the government."
A Department of Foreign Affairs and Trade spokesperson did not comment on the Bank of China delegation's visit to Nauru.
"The Australian government remains committed to working with Pacific Island countries to maintain access to enduring banking services," they said.
Another Australian government source told the ABC that while officials were very conscious of the strategic implications of a switch to the Bank of China, they were most sharply focused on doing everything possible to help Nauru maintain essential financial services.
Earlier this month Australia's Pacific Minister Pat Conroy told the ABC that Australia was working hard to "support Nauru remaining banked".
"We are their largest development partner and we will work with them to make sure that they have the economic infrastructure in place to sustain their economy," he said.
"These are complex matters but I'm confident that we can find a landing place that will make all parties happy."
Nauru also faces significant long-term financial challenges because it remains so dependent on fees that Australia has paid to maintain a refugee processing centre in the country.
In January, Taiwan suggested that Nauru switched diplomatic recognition to China because Taipei refused to help it fill a "financial shortfall" left by the phase-down of the centre's operations in coming years.
Australia rejected that claim and said it continued to honour funding agreements with Nauru for the processing centre.