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Registered Bank Category Period of breach Date registered bank became aware Status
Westpac New Zealand Limited Condition of Registration – Liquidity Estimated to be since the Liquidity Policy took effect in April 2010 9 July 2021 Open

Liquidity is the amount of money that is readily available to a business. This includes cash and assets that can be quickly sold at a reliable price. Liquidity risk crystallises when a business is unable to meet its financial obligations as they fall due, this might lead to loss of confidence in a business, and in severe cases, default. Retail banks play a crucial role in the financial system, taking in deposits, facilitating payments and lending to individuals and businesses. The majority of deposits are short-term, while a large proportion of lending is in long-term residential mortgages which can extend out to 30 years. This leaves banks vulnerable to liquidity risk which needs to be managed.

Following the Global Financial Crisis, the Reserve Bank drafted the ‘Liquidity Policy’ (BS13) and ’Liquidity Policy Annex: Liquid Assets’ (BS13A) in recognition that bank liquidity is essential to the smooth functioning of the financial system and to mitigate the risk of future liquidity problems disrupting the financial system. This was consulted on in 2009 and introduced on 1 April 2010.

Westpac New Zealand Limited's (WNZL) Condition of Registration 14 requires WNZL to calculate the one-week mismatch ratio, the one-month mismatch ratio and the one-year core funding ratio in accordance with the methodology prescribed in BS13 and BS13A most recently issued in May 2021.

The Reserve Bank's Liquidity Thematic Review, published in 2021, identified a series of quantitative areas of non-compliance where, as at the date of the review in January 2020, WNZL was not calculating the ratios in compliance with BS13, breaching its Conditions of Registration.

Liquidity Thematic Review

The Reserve Bank has assessed the findings of non-compliance with BS13 against the materiality factors outlined in the Guidance on reporting by banks of breaches of regulatory requirements, published in January 2021 and decided that they do not individually constitute a material breach of WNZL’s Condition of Registration 14.

Guidance on reporting by banks of breaches of regulatory requirements (PDF 778KB)

However, when assessing breaches for materiality the Reserve Bank undertakes a holistic assessment of the findings and has concluded that the number of instances of non-compliance with BS13 do collectively constitute a material breach of Condition of Registration 14. Although the liquidity ratios remained compliant with the regulatory minimum requirements, the Reserve Bank considers that the multiple breaches of Condition of Registration 14 raise prudential concerns as these breaches would have caused WNZL’s mismatch ratios to fall below internal limits, set by WNZL management, on several occasions, and are part of a recurring pattern of breaches in relation to a matter that is of the same nature.

As at 31 December 2021 WNZL is compliant with the Reserve Bank’s liquidity metric requirements.  WNZL’s liquidity position can be viewed on the Bank Financial Strength Dashboard.

Bank Financial Strength Dashboard