ANZ shares slide on Reserve Bank of New Zealand capital rebuke

ANZ shares have slid after the RBNZ effectively hiked the minimum capital requirements of its New Zealand arm.

The Reserve Bank of New Zealand headquarters in Wellington. Picture: Bloomberg

ANZ shares dropped more than 3 per cent following an announcement that its New Zealand arm will be required to increase the capital it holds as a buffer against crises after it was censored by the country’s central bank for failings.

The Reserve Bank of New Zealand revoked ANZ Bank New Zealand’s accreditation to model its own operational risk-capital requirement and hiked the minimum capital it needs to hold for operational risk by around 60 per cent due to a “persistent failure in its controls and attestation process”.

By about 3.24pm (AEST) shares in ANZ (ANZ) had slid 3.11 per cent at $25.83 as the broader ASX200 booked gains of 0.55 per cent.

The other major banks also reacted to the news, with Westpac slipping 1.72 per cent, NAB down 1.07 per cent, while CBA dipped 0.59 per cent.

The RBNZ said ANZ now has to use a standardised approach for calculating operational risk capital and from March 31 this year, ANZ’s minimum capital held for operational risk would increase by $NZ277million ($262.74m) to $NZ760m.

At the end of March, ANZ New Zealand’s total capital was $NZ12.46 billion and the bank had total loans in New Zealand of NZ$130.6 billion, including NZ$78.76 billion in housing loans.

“Accreditation is earned through maintaining high risk management standards, and comes with stringent responsibilities for the bank’s directors and management,” RBNZ deputy governor Geoff Bascand said.

“The Reserve Bank’s role is to review and approve internal models.

“The onus is then on bank directors to ensure, and attest, that their bank is compliant with the Reserve Bank’s regulatory requirements.

Mr Bascand said that ANZ’s directors have attested to compliance despite the approved model calculation of its operational risk capital not being used since 2014.

“The fact that this issue was not identified for so long highlights a persistent weakness with ANZ’s assurance process,” he said.

ANZ responded this morning saying it had discovered it wasn’t using an approved model for the calculation of its operation risk capital during a review in April of this year, and had promptly escalated the matter to its board and reported it to the RBNZ.

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

“ANZ New Zealand, its Board and its management takes the attestation regime very seriously.

“While ANZ believes it has appropriate controls and attestation processes in place, it will work with the RBNZ in its assessment of those controls and processes.”

The criticism of ANZ comes as the Reserve Bank is consulting on the capital framework for banks and a plan to lift the buffer for lenders against risk. Among the proposals is that all banks operating in the country adopt a new standardized approach to calculating capital requirements, which the Reserve Bank said was needed due to proven weaknesses with internal models. A decision on the capital regime is expected by September.

The central bank requires banks to maintain a minimum capital buffer, determined by the risk of each bank’s business. Accreditation is given to banks that maintain high risk-management standards, and disclosure statements contain statements that are signed by each director of a bank that include whether it has systems that adequately control material risks and are being properly applied.

With Dow Jones