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New Zealand to ramp up monitoring of NAB unit over capital calculation errors

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By Reuters
New Zealand to ramp up monitoring of NAB unit over capital calculation errors
FILE PHOTO: A security guard stands in the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand, July 3, 2017. REUTERS/David Gray   -   Copyright  DAVID GRAY(Reuters)

WELLINGTON (Reuters) – New Zealand’s central bank said on Tuesday it was stepping up monitoring of National Australia Bank Ltd (NAB) <NAB.AX> subsidiary Bank of New Zealand (BNZ) [BNZL.UL] after identifying errors in the lender’s risk capital calculation process.

The Reserve Bank of New Zealand (RBNZ), which supervises the banking sector, said BNZ had made three capital calculation errors that resulted in misreported risk-weighted assets over a number of years.

“It is now required to increase the risk weight floor of its operational risk capital model from $350 million to $600 million capital,” the RBNZ said in a statement.

The new requirement comes months after the RBNZ in May revoked the licence of rival ANZ Bank New Zealand to calculate its own operational risk capital due to “persistent” control failures.

The RBNZ is due to announce whether it will radically increase the amount of capital banks must hold on Dec. 5.

BNZ has not breached its minimum capital requirements, the regulator said.

“However, given the likelihood that further compliance issues will be discovered during the review and remediation, the Reserve Bank regards a precautionary capital adjustment as prudent,” Deputy Governor Geoff Bascand said in a statement.

“The additional capital overlay will be removed when remediation is complete.”

Sam Perkins, BNZ’s chief risk officer, said the bank was “disappointed to have not met RBNZ’s guidelines,” and that the bank was strengthening its processes.

“We are making good progress on addressing this issue and expect to have it completed next year,” Perkins said.

The largest lenders in New Zealand are all owned by Australia’s “Big Four” banks – NAB, Australia and New Zealand Banking Group Ltd (ANZ) <ANZ.AX>, Commonwealth Bank of Australia <CBA.AX> and Westpac Banking Corp <WBC.AX>.

The regulator’s capital proposal would require them to boost the collective capital they hold in New Zealand by about NZ$20 billion ($12.78 billion).

(Reporting by Paulina Duran in Sydney and Charlotte Greenfield in Wellington; Editing by Clarence Fernandez and Christopher Cushing)