ANZ to be subject to capital model review

ANZ Bank New Zealand Limited (ANZ NZ) is to be subject to a review of its capital adequacy requirements and its director’s attestation and assurance framework, following requests from the country’s central bank.

The Reserve Bank of New Zealand (RBNZ) is looking to drastically increase capital requirements for banks operating in the country – with an ongoing consultation expected to come to a head in the September quarter of this year.

The proposals put forward by RBNZ, designed to protect the economy from financial shocks, would almost double the required amount of high quality capital that banks will have to hold (however, it says it expects that it will generally be an increase of between 20 and 60 percent).

ANZ – New Zealand’s largest mortgage lender – has been a vocal opponent of the proposed changes and RBNZ last month revoked the ability of ANZ’s local unit to autonomously assess its risk capital requirement, citing persistent shortcomings.

ANZ Bank New Zealand Ltd will reportedly have to raise its minimum capital by about 60 per cent to NZ$760 million ($721 million).

RBNZ has now revealed that it has requested two reports from ANZ New Zealand to “provide assurance it is operating in a prudent manner”.

Under the Reserve Bank of New Zealand Act 1989, the central bank has the power to require a bank to provide a report by a Reserve Bank-approved, independent person.

These reviews can investigate such issues as risk management, corporate or financial matters, and operational systems.

RBNZ has called for a report to cover ANZ New Zealand’s “compliance with the Reserve Bank’s current and historic capital adequacy requirements” and another to assess the effectiveness of ANZ New Zealand’s director’s attestation and assurance framework, focusing on “internal governance, risk management and internal controls”.

Speaking of the request, Reserve Bank governor Adrian Orr said ANZ remains sound and well capitalised.

“We continue to engage constructively with ANZ New Zealand’s board, and they remain focused on these important issues. These formal reviews will allow us to work with the bank to ensure the public, and we as regulator, can have continued confidence in the bank and that it is operating in a prudent manner.”

“Section 95 reports are part of our supervisory toolkit and provide independent assurance and insight about banks’ systems and practices. We have used them effectively in the past, and we will continue to do so.”

In a statement, former NZ prime minister and current ANZ Bank New Zealand chairman Sir John Key commented: “The board had been working on commencing an independent review to provide assurance that our capital models and the directors’ attestation process are robust and operating in a prudent manner.

“Following discussions with the RBNZ, the directors agree that the best way to achieve this assurance is working with the RBNZ and an independent party to undertake the necessary reviews.”

ANZ NZ will now work to commission an independent third party to look at its compliance with its capital adequacy requirements and the directors’ attestation and assurance framework.

He continued: “As has been the case with independent reviews of other financial institutions’ processes, we agree that the most effective way of achieving this assurance is via the independent report powers given to the RBNZ under section 95 of the RBNZ Act.”

The bank noted that as at 31 March 2019, ANZ NZ held over $12.4 billion of capital, “almost $3.5 billion more than its regulatory requirement”.

The move comes just days after ANZ New Zealand announced that it had a new acting CEO to replace former chief executive David Hisco, who departed the bank following “ongoing health issues” as well as “board concern about the characterisation of certain transactions”.

Sir John Key stated in a press conference last week that the bank had conducted an internal review of personal expenses, which raised “concern” about Mr Hisco’s personal use of chauffeur-driven cars, as well as storage costs that were charged without the provision of proper disclosures.

“While Mr Hisco does not accept all of the concerns raised by the board, he accepts accountability given his leadership position and agrees the characterisation of the expenses falls short of the standards required,” ANZ’s disclosure to the ASX stated.

NZ announces new deposit protection scheme

The RBNZ review requests came on the same day as New Zealand's Coalition Government announced moves to make New Zealand’s banking system "safer for customers" through a new deposit protection regime, as well as "strengthened accountability for banks’ actions".

In a statement, NZ finance minister Grant Robertson said that the in-principle decisions are part of Phase 2 of the Review of the Reserve Bank Act, which aims to review and update the 30-year old laws regulating the banking system.

“Now is the right time to check we have the tools to make sure banks meet their obligations to New Zealanders, and the powers to enforce them,” Mr Robertson said.

“The government is also making sure New Zealand follows international best practice for promoting public confidence in our banking system, including on the issue of depositor protection.”

He continued: “New Zealand has been an outlier for many years in that we don’t have a formal deposit protection regime to support Kiwis if a bank were to fall over."

While he added that the banks were "safe and sound", he noted that both the OECD and IMF have said that the NZ banking system "might be more vulnerable in a crisis because we don’t have a deposit protection regime.

"A deposit protection regime will increase public confidence in the banks.”

Following consultation with the secotr, the NZ government is therefore proposing a limit between $30,000 and $50,000 for the deposit protection regime. This would reportedly cover 90 per cent of individual bank deposits in New Zealand, which is similar to international schemes. 

“Overseas experience shows that bank failures can be the result of a few bad decisions that normal bank customers had no influence over and no idea about. A deposit protection scheme will help protect customers like a young couple saving a deposit for a house, people saving for their retirement, or the small business operator who keeps money aside for a rainy day," the finance minister said.

New Zealand is also looking to bring in a banking accountability regime - potentially by adopting elements of overseas frameworks (such as Australia's BEAR) - which would aims to increase the responsibilities and accountabilities of senior executives for the actions of New Zealand’s banks and licensed deposit-takers.

“These regimes go a step further than New Zealand’s current Director Attestation Regime for banks, by also holding senior managers to account for the prudent management of their bank within their area of responsibility,” Mr Robertson commented.

Final decisions on the full details of a deposit protection regime and strengthened accountability standards will be announced in early 2020.

[Related: ANZ New Zealand names new acting CEO]