Westpac NZ breaches RBNZ rule on liabilities; operating model under review (Update 1)

Westpac's NZ branch, as opposed to its locally incorporated bank, has breached a NZ$15 billion limit on liabilities that is a condition for its registration as a New Zealand bank and the Reserve Bank has asked Westpac to review the structure of its operating model in New Zealand. (Updated to include details from Westpac statement/Clarifies refers to branch rather than core locally incorporated bank). A spokeswoman for the Reserve Bank confirmed the details in an article in The Sheet.com were correct to Interest.co.nz. A spokesman for Westpac confirmed the review. Here are the details below from the TheSheet article and in a Westpac statement.

Falling New Zealand dollar and interest rates pushed Westpac's New Zealand branch total liabilities beyond the $15 billion limit during the six months ended March 2009.  As at March 31, the bank's total liabilities in NZ was at NZ$16.2 billion. The NZ$15 billion limit on total liabilities is one of the several conditions of registration imposed on the NZ branch. Westpac said it has notified the Reserve Bank of New Zealand on becoming aware of this non-compliance and is working, in consultation with it, on steps to remedy the non-compliance. The falling NZ dollar and interest rate increased the liability under interest rate and cross currency swaps as positions were revalued. The Reserve Bank of New Zealand has asked Westpac to review the structure of its operating model to ensure it can consistently comply with its prudential policies after it was found in 2008 that both the bank's incorporated entity in NZ and the branch had been non-compliant with their conditions of registration. An independent review will now take place with the terms established after consultations between the RBNZ, Westpac NZ and the NZ branch. The review will be conducted under the established processes and framework of section 95 of the Reserve Bank Act.

In 2008, it became apparent that both the Bank and the NZ Branch had been non-compliant with their conditions of registration. Consequently, the Reserve Bank of New Zealand has asked that the Ultimate Parent Bank reviews the structure of its operating model to ensure that it is able to sustain durable compliance with the Reserve Bank of New Zealand's prudential policies. Accordingly, it has been agreed that an independent review will take place, with the terms of reference for the review being established through consultation between the Reserve Bank of New Zealand, the Bank and the NZ Branch. It is anticipated that this review will be conducted under the well established processes and framework of section 95 of the Reserve Bank Act. The Board anticipates that any consequent operating model and governance changes will be appropriately outlined in the Bank's and the NZ Branch's General Disclosure Statements for the year ending 30 September 2009.