BNZ forced to increase capital after calculation errors

by Ksenia Stepanova20 Nov 2019

The Reserve Bank has increased its supervision of BNZ after finding “a number of errors” in its calculation of capital, which resulted in a misreporting of risk over several years.

The Reserve Bank has now applied a number of adjustments to BNZ’s capital requirements, and the bank will now need to increase the risk weight floor of its operational risk capital model from $350 million to $600 million. RBNZ noted that despite this increase, BNZ hasn’t been in breach of minimum capital requirements at any stage.

RBNZ deputy governor Geoff Bascand he expected further compliance issues to surface following the review and remediation of BNZ, and the $250 million increase is a “prudent” precautionary adjustment.

“We are reassured by BNZ’s response to the issues along with the independent oversight from PWC,” Bascand stated. “BNZ has committed to providing the Reserve Bank with regular and timely updates of the details of issues as they are discovered and the remedial activity as this work progresses.”

“The additional capital overlay will be removed when remediation is complete,” he added. “It is the Reserve Bank’s expectation that the current review will identify all outstanding compliance issues and potential breaches.”

The Reserve Bank completed a review of bank director attestation processes in 2017, and found that many banks were attesting to compliance on the basis of having no evidence that they were not in compliance – i.e., on a negative assurance basis. However, breaches to conditions of registration have been discovered as the banks have moved to a positive evidence-based assurance framework.

Bascand says that a number of banks have disclosed breaches over the past year, and many of these have been in relation to their regulatory capital or liquidity. Westpac completed its own remediation process earlier this month, and censured ANZ in May for “persistent failures” in its attestation processes and controls.

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