West­pac slammed over cash re­serves

The Southland Times - - BUSINESS - HAMISH RUTHER­FORD

West­pac has been forced to hold more cash on its bal­ance sheet af­ter the Reserve Bank found ‘‘se­ri­ous short­com­ings and non­com­pli­ance’’ in its risk mod­els.

The Reserve Bank has an­nounced it will re­quire West­pac to hold an ex­tra 2 per­cent­age points of each form of reg­u­la­tory cap­i­tal banks are re­quired to hold un­til the prob­lems are fixed.

Un­der its op­er­at­ing agree­ment with the Reserve Bank, West­pac is re­quired to op­er­ate ap­proved risk mod­els to cal­cu­late how much reg­u­la­tory cap­i­tal it needs to hold.

Yes­ter­day the Reserve Bank re­vealed the out­come of an in­de­pen­dent re­port into West­pac’s op­er­a­tions in New Zealand, which found that 17 out of 35 cap­i­tal mod­els were un­ap­proved.

At one time 21 of the 32 cap­i­tal mod­els it used were un­ap­proved.

Op­er­at­ing un­ap­proved mod­els could make it im­pos­si­ble for reg­u­la­tors to de­ter­mine ex­actly how risky the bank’s loan book is, or how much cap­i­tal it should hold to pro­tect cus­tomers.

West­pac had noted the breach in its reg­u­la­tory dis­clo­sure at the end of 2016. The prob­lems date back to 2008.

In a state­ment the Reserve Bank said West­pac had ‘‘ma­te­ri­ally failed to meet re­quire­ments around model gov­er­nance, pro­cesses and doc­u­men­ta­tion’’.

It has been given 18 months to rec­tify the prob­lems.

The penalty im­posed may have lit­tle prac­ti­cal im­pact. In a state­ment West­pac said its cur­rent cap­i­tal ra­tios ‘‘are suf­fi­cient to ac­com­mo­date these in­creases’’.

The bank also said it was ‘‘dis­ap­pointed’’ not to have met the Reserve Bank’s re­quire­ments.

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