Westpac is to stop doing business with the government of Nauru and its entities.
RNZ International understands the Australian bank has written to the country's government asking to end their years-long relationship over several concerns about the use of the accounts.
The decision will not affect regular cutomers who make banking transactions to Nauru.
The government's main bank accounts are with Westpac.
A spokesperson for Westpac in Australia declined to comment, citing customer confidentiality.
Apart from the government's accounts, the bank has no presence on Nauru.
Another Australian bank, Bendigo, opened a branch there last year -- the first bank branch on Nauru to open in 15 years.
The Nauru government has been approached for comment, but in a tweet on Thursday night, the government account said it was "a politically-motivated fabrication," and said the government would release a "statement with facts soon."
Supposedly "exclusive" story by ABC about banking in Nauru is politically-motivated fabrication. Govt will release statement with facts soon— Republic of Nauru (@Republic_Nauru) April 14, 2016
The government has increasingly claimed an improving economic outlook for the island, and this week announced the establishment of a sovereign trust fund which will be kick-started by an Asian Development Bank grant, with annual contributions by Australia and Taiwan.
Most of Nauru's revenue comes from foreign aid and money generated by holding thousands of asylum seekers and refugees sent by Australia as part of its hardline border policy.
Earlier this week it was announced that Nauru had joined the International Monetary Fund and the World Bank.