RBNZ raised concerns about the risk governance processes of Westpac NZ and instructed the bank to commission two independent reports to address the concerns. RBNZ is requiring Westpac to provide an independent report that assesses the risk governance processes and practices applied by the Westpac NZ Board and executive management. RBNZ is also requiring Westpac NZ to provide a separate independent report to offer assurance about the effectiveness of actions taken to improve the management of liquidity risks and the culture surrounding it. Until RBNZ is satisfied, RBNZ is increasing the bank's required holding of liquid assets (cash or assets that can be easily converted into cash).
Westpac NZ was found to be in breach of the requirements of the RBNZ Liquidity Policy (BS13), which includes compliance with minimum mismatch ratios. The mismatch ratio is a measure of a bank’s liquid assets, adjusted for expected cash inflows and outflows to mitigate risk during a period of stress. Westpac NZ was non-compliant with its liquidity requirements because it was not calculating its mismatch ratios correctly. This had a material impact on the bank’s mismatch ratios with the non-compliance occurring from 2012 to 2020. The calculations have since been corrected and Westpac NZ has progressed a program of remediation to address the root causes of the non-compliance.
The required independent reviews come under Section 95 of RBNZ Act 1989, which gives RBNZ the power to require a bank to provide a report by the RBNZ-approved independent person. RBNZ will work with Westpac NZ to implement the findings of the report. It is to be noted that RBNZ is confident that the current liquidity and funding positions of Westpac NZ are sound and that the bank is well-capitalized. The reviews are intended to ensure that this remains the situation on an ongoing basis.
Keywords: Asia Pacific, New Zealand, Banking, Westpac, Governance, Liquidity Risk, Basel, RBNZ
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