NZ dollar's fall sparks Westpac review

Westpac is to review its New Zealand operating model after the kiwi dollar's fall this year caused its local branch operation to breach Reserve Bank rules limiting its total liabilities.

While Westpac's core retail and business banking operations here have been conducted by a locally incorporated subsidiary since 2006, its institutional banking and some other operations continue under the umbrella of a local branch of its Australian parent.

Westpac's March-half General Disclosure Statement issued this week reveals that the branch breached its Conditions of Registration during that period by exceeding the $15 billion limit on total liabilities. At the end of March the figure stood at $16.2 billion.

"The non-compliance was caused by falling NZ dollar exchange rates and interest rates, which increased the NZ branch's liability under derivative financial instruments as positions were revalued," the bank said.

"The NZ branch notified the Reserve Bank upon becoming aware of this non-compliance and is working, in consultation with the Reserve Bank, on steps which will remedy the non-compliance."

Westpac also revealed that both its locally incorporated entity and its branch operation had breached their conditions of registration last year.

"Consequently, the Reserve Bank of New Zealand has asked that the ultimate parent bank reviews the structure of its operating model to ensure that it is able to sustain durable compliance with the Reserve Bank of New Zealand's prudential policies."

Terms of reference for the "independent" review were being set through consultation between the bank and the Reserve Bank.