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BFCSA: RBNZ hints at more actions against ANZ

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RBNZ hints at more actions against ANZ

Australian Financial Review May 17, 2019 3.23pm

James Frost


ANZ Banking Group's relationship with the Reserve Bank of New Zealand has deteriorated after it was penalised for running an unapproved model for its rainy day reserves, and the central bank flagged it may be just the tip of the iceberg.

The bank suffered a humiliating blow on Friday after the privilege to run its own operational risk reserve was revoked by the RBNZ when ANZ admitted it had been using a rogue model for almost five years.

New Zealand’s central bank has, however, rejected claims the move was payback for ANZ’s inflammatory remarks about withdrawing from the country in response to increased capital weightings.

The RBNZ said the bank changed its approach to calculating the size of a rainy day fund known as operational risk capital reserve in 2014 but did inform the regulator.

It also says ANZ New Zealand had its directors sign incorrect statements attesting that the approved model has been used over the period.

The RBNZ said on Friday morning ANZ would be forced to use a standardised approach to operational risk capital because it could not be trusted to do the right thing.

“The Reserve Bank has revoked ANZ Bank New Zealand Limited’s accreditation to model its own operational risk capital requirement due to a persistent failure in its controls and attestation process,” the RBNZ said in a statement.

The new approach will require ANZ to increase its minimum capital held for operational risk by 60 per cent, or $277 million, to $760 million. ANZ shares fell 76¢, or 2.9 per cent, to $25.90 on Friday.

ANZ said once the problem was discovered it was escalated to the board and reported to the RBNZ. It says the unapproved model was based on the sanctioned version but included an annual adjustment to reflect growth.

“While isolated, and with no impact on customers or the operation of the bank, ANZ New Zealand is disappointed this error occurred,” the bank said.

It may not be the end of ANZ’s problems, however, with the regulator flagging the prospect of further developments.

“We continue to work with ANZ in assessing its systems controls before determining any further action,” the RBNZ said in a statement.

The last time the RBNZ took action of a similar magnitude was against Westpac in 2017, when it was revealed 17 of 35 capital models being used by the bank were unapproved.

ANZ is one of the big four Australian banks that is currently squaring off against the RBNZ ahead of a flagged increase in capital requirements which some analysts say could require them to set aside another $8.1 billion.

At the bank’s half-year results on May 1, ANZ CEO Shayne Elliott said he had “obvious concerns” about any changes and may need to rethink how much business the bank did in New Zealand as a result.

“Clearly we have options, on the amount of capital we put into New Zealand, and on how we deploy that capital in New Zealand, into which sectors and what returns we require of it," he said.

A spokesperson for the RBNZ said however the two events are not linked, saying it was a merely a coincidence the consultation period for the capital review also ended on Friday.

“Under our markets/self-discipline regime the process for breach reporting is that banks disclose their own breaches in their disclosure statements. Our statement reflects the release of ANZ’s disclosure statement today,” the spokesman said.

At the time of writing ANZ was yet to submit its proposal on the capital review, however it was expected to do so before the deadline.



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