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Reserve Bank forces ANZ to increase risk capital by 60%

The Reserve Bank has revoked ANZ's license to model its own operational risk capital, a move that will force the lender to increase its minimum capital by 60%, or $277 million.

Friday, May 17th 2019, 1:21PM

The central bank made the surprise announcement this afternoon, in a move that will deliver a major blow to the big four lender.

Banks hold risk capital depending on the risk level of their business. Lenders calculate the appropriate levels of capital to absorb large, unexpected losses. However due to internal failings at ANZ, and "persistent failure in its controls and attestation process", the Reserve Bank has punished the lender.

Previously, ANZ used its own operational risk capital model. Yet the model was found to be out of date.

ANZ will now be forced to use the "standardised" approach. The central bank stated ANZ will need an extra 60% of capital, raising risk capital to $760 million in total.

RBNZ Deputy Governor Geoff Bascand said the failure was discovered after the Reserve Bank encouraged ANZ to undertake a full review of its capital requirements.

ANZ said the problem came to light last month. The bank said it "escalated" the issue to its board upon discovery and reported it to the Reserve Bank.

ANZ says it will need to hold an extra $277 million in risk capital. Due to the move, its capital ratios have decreased by 0.4% for common tier equity 1, it said, and 0.6% for total capital.

It is unclear what impact the extra capital requirements will have on ANZ's lending book. 

The bank added: "ANZ New Zealand is disappointed this error occurred. ANZ New Zealand, its Board and its management takes the attestation regime very seriously. While ANZ believes it has appropriate controls and attestation processes in place, it will work with the RBNZ in its assessment of those controls and processes."

Bascand delivered a damning verdict on the bank. “The Reserve Bank’s role is to review and approve internal models. The onus is then on bank directors to ensure, and attest, that their bank is compliant with the Reserve Bank’s regulatory requirements. To do that, bank directors need to be satisfied that the internal assurance processes that sit behind the attestations are being adhered to.

“ANZ’s directors have attested to compliance despite the approved model not being used since 2014. The fact that this issue was not identified for so long highlights a persistent weakness with ANZ’s assurance process.”

The censure from RBNZ comes as the central bank conducts a consultation process on new capital requirements for all of New Zealand's banks. It is likely to force the big four into significant increases, with proposed estimates of 20%-60% in additional capital.

Tags: Reserve Bank

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 5.50 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 3.85 3.95 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.55 2.65 2.79
Kainga Ora 4.43 ▼2.93 ▼3.07 ▼3.24
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.45 2.99 3.35
SBS Bank 4.54 ▼3.05 3.19 ▼3.25
Lender Flt 1yr 2yr 3yr
SBS Bank Special - ▼2.55 2.69 ▼2.75
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 2.79
The Co-operative Bank - Standard 4.40 3.05 3.19 3.29
TSB Bank 5.34 3.35 3.49 3.79
TSB Special 4.54 2.55 2.69 2.99
Wairarapa Building Society 4.99 3.65 3.69 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.05 3.13 3.12

Last updated: 13 August 2020 2:59pm

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