New ANZ report reveals string of unapproved capital models

Report says a "culture of acceptance of legacy models" is to blame

New ANZ report reveals string of unapproved capital models

A new report from Deloitte has revealed a string of failures from ANZ to use approved operational risk capital models, along with other failures to fulfil the conditions of its banking license in New Zealand.

ANZ New Zealand was reprimanded by the Reserve Bank in May of last year for failing to get its ORC model approved, and two independent reports were commissioned as a result.

The first report, published in December, found that the bank’s New Zealand directors had not taken the steps necessary to ensure that ANZ was fully compliant. The second report has now been released, and has found that at least 17 of ANZ’s 33 wholesale credit models had not been approved by the Reserve Bank, and nor was their ORC model.

A number of changes to retail and wholesale models were also not approved before they were implemented.

The report noted that the reason for this was partly due to “insufficient rigour historically” around the relevant processes, and a “culture of acceptance” of legacy models with nobody making any New Zealand-specific amendments, or actively monitoring compliance. On occasion, ANZ had submitted smaller-scale changes to its models for approval with the Reserve Bank, despite the fact that the entire model had not received approval.

New Zealand’s four main banks are allowed to use their own internal models for calculating capital requirements, while New Zealand banks have to use standardised models. The scale of this advantage was revealed in February last year, with ANZ needing to hold just over half as much capital as Kiwibank for every $100 of mortgage lending.

The Reserve Bank revoked ANZ’s approval to model its own operational risk capital requirements in May of last year, when its use of unapproved models was revealed.

Reserve Bank deputy governor Geoff Bascand said he would work with ANZ to address any areas of non-compliance.

“We have discussed the findings of the latest section 95 report with ANZ,” Bascand said.

“They have been forthcoming with their desire to address this and we are confident that ANZ will resolve this matter without issue. ANZ remains sound and well capitalised.”

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