Westpac has been forced to boost the paid up equity in its New Zealand holding company as part of its capital management of the group.
Documents filed to regulators in New Zealand and Australia on 30 March show Westpac’s Australian operation pumped $A 320 million ($NZ347 million) into Westpac New Zealand Group Limited (WANGL) – the immediate parent of the Kiwi banking arm.
It is one of the largest single capital injections made by Westpac in New Zealand.
The bank last night declined to comment on whether the big the capital boost was related to Reserve Bank of New Zealand’s decision last month to increase the Kiwi subsidiary’s capital burden for non-compliant liquidity management practices.
The RBNZ announced on 24 March that it would impose a “capital overlay” on the Westpac arm until it was satisfied an internal remediation program addressed the root causes of the liquidity management breaches that occurred between 2012 to 2020.
However, the regulator did not say at the time what the size of the overlay would be.
“Until the Reserve Bank 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),” the RBNZ said on 24 March.
Capital overlays for other misdemeanours have put Westpac’s Kiwi business at a competitive disadvantage to its major rivals in the New Zealand market.
While Westpac has the smallest asset base of the four Australian-owned major banks in New Zealand, recent compliance problems have meant that its total capital requirements have been significantly higher than its peers for several years.
At the end of September last year, Westpac’s Kiwi arm reported a total capital ratio of 17.1 per cent of risk weighted assets, while the ratio of the CBA-owned ASB stood at 14.2 per cent.
ANZ and the NAB-owned Bank of New Zealand each reported ratios under 15 per cent.
Westpac chief executive Peter King is likely to come under pressure from institutional shareholders to explain the drivers of the renewed capital commitment to the New Zealand business at the interim profit announcement on 3 May.
Although banking analysts had factored higher NZ capital charges in their modelling for Westpac’s financial performance in the current year, the magnitude of the latest capital injection might require revisions to forecasts.
There is some uncertainty about the long term involvement of Westpac in New Zealand.
Only hours after it was disciplined by the RBNZ on 24 March, the bank announced that it was reviewing the structure of its Kiwi business, with the prospect of demerging it from the group.
While the bank stressed it was at a “very early stage” of conducting an assessment, it cited changing capital requirements in New Zealand as a factor in its decision to initiate the review.
“The business continues to perform well with a strong position in retail and commercial banking,” Westpac said in a filing to the ASX.
“However, given the changing capital requirements in New Zealand and the RBNZ requirement to structurally separate Westpac’s NZ business operations from its operations