Westpac considering New Zealand unit demerger amid risk review

“We have experienced ongoing compliance issues with Westpac NZ over recent years, most recently involving material failures to report liquidity correctly, in line with the Reserve Bank’s liquidity requirements,” said Deputy Governor and General Manager of Financial Stability Geoff Bascand in a press release. “Furthermore, the bank has continued to operate outside of its own risk settings for technology for a number of years.”

The first independent report must assess Westpac NZ’s “risk governance processes and practices applied by the Westpac NZ board and executive management,” the Reserve Bank of New Zealand said. A separate independent report must “provide assurance that the actions they have taken to improve the management of their liquidity risks, and the culture surrounding it, are effective.”

The Reserve Bank said it will work with Westpac NZ to implement the findings of the reviews.

The liquidity breaches were previously reported to the Reserve Bank and the Australian Prudential Regulation Authority (APRA) and first disclosed in Westpac NZ’s September 2020 disclosure statement. In December 2020, APRA announced actions it was taking against Westpac Banking Corporation as a result of these issues, including third-party reviews.

The Reserve Bank said, until it is satisfied that Westpac NZ’s remediation work is complete and effective, it is increasing the bank’s required holding of liquid assets (cash or assets that can be easily converted into cash). It expressed confidence, however, that “Westpac NZ’s current liquidity and funding positions are sound, and that the bank is well capitalized.” The reviews, it said, are “to ensure this remains the situation on an ongoing basis.”

Westpac’s response

Westpac Group announced Wednesday it is in the “very early stage” of assessing “the appropriate structure for its New Zealand business and whether a demerger would be in the best interests of shareholders.” Westpac said this assessment also considers the impact of the Reserve Bank of New Zealand’s reviews.

In a statement, Westpac NZ said it “acknowledges the importance of liquidity and risk governance obligations and will support the independent reviewers to provide the necessary reports to the Reserve Bank.” The bank added it will “also act promptly on any recommendations from the reviews.”

Westpac NZ said it has “taken a number of steps to improve risk governance but recognizes more work is required and supports the additional oversight that the independent reports will provide.” It added the reviews apply only to Westpac NZ and not the governance processes of Westpac Banking Corporation in Australia or its New Zealand branch.