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New Zealand central bank revokes ANZ’s permission to assess operational risk capital

WELLINGTON (Reuters) – New ZealandÔÇÖs central bank has revoked Australia and New Zealand Banking GroupÔÇÖs local license to calculate its own operational risk capital due to ÔÇ£persistentÔÇØ control failures, adding to the bankÔÇÖs minimum capital requirement in the country.

The censure comes at a time when the Reserve Bank of New Zealand (RBNZ) is undertaking broader measures to increase capital requirements and reduce risk to the financial system in the event of any major shock.

ANZÔÇÖs New Zealand unit would now be required to use the central bankÔÇÖs standardized approach for calculating operational risk, raising its minimum capital requirement to NZ$760 million ($496.4 million), the RBNZ said in a statement.

Shares in ANZÔÇÖs New Zealand unit, listed on the local stock exchange, closed 3.1% lower at NZ$27.25.

ANZ is the biggest of the four Australian-owned banks that dominate the New Zealand market. It is accredited by the Reserve Bank to calculate its own regulatory capital requirements, but an internal review in April revealed that ANZ was not using the operational risk model the central bank had approved.

ÔÇ£ANZÔÇÖs directors have attested to compliance despite the approved model not being used since 2014,ÔÇØ RBNZÔÇÖs deputy governor, Geoff Bascand, said in a statement.

ÔÇ£The fact that this issue was not identified for so long highlights a persistent weakness with ANZÔÇÖs assurance process.ÔÇØ

The operational risk model is one of several used by ANZ to asses its risk capital, a spokeswoman for the bank said.

ANZ said it accepts the regulatorÔÇÖs decision, which would mean that as of March 31 the bankÔÇÖs operational risk capital requirement increased by NZ$277 million.

ÔÇ£While isolated, and with no impact on customers or the operation of the bank, ANZ New Zealand is disappointed this error occurred,ÔÇØ it said in an emailed statement.

The bank said it will work with RBNZ as it assesses whether it has appropriate verification processes in place.

In late 2017, the RBNZ forced Westpac Banking Corp’s New Zealand unit to keep higher capital levels until it fixed issues with its risk model’s governance, processes, and documentation. (reut.rs/2EhEt0S)

As part of its broader measures for the financial industry, RBNZ has already proposed raising top banksÔÇÖ capital ratio to 16%, indicating the countryÔÇÖs top four banks, including ANZ, could collectively have to raise NZ$20 billion in new capital over the next five years, which could push up borrowing costs.

A decision is expected in the third quarter.

Reporting by Nikhil Kurian Nainan in BENGALURU and Charlotte Greenfield in WELLINGTON, Additional reporting by Paulina Duran in SYDNEY; Editing by Stephen Coates and Himani Sarkar

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