ASB restates capital ratios after miscalculation puts it out of compliance

On finding the mistake, the bank hired a professional services firm to review its compliance.

ASB Bank, the local arm of Commonwealth Bank of Australia, has restated its reported capital ratios after a miscalculation meant it fell short of compliance for the better part of a year.

In September, the Auckland-based lender discovered it overstated its capital ratios for the September 2016, December 2016, March 2017 and June 2017 periods, which it has since addressed in its latest disclosure statement. ASB said it applied an incorrect definition of surplus common equity tier one capital in the calculations, which breached a condition of registration.

On finding the mistake, the bank hired a professional services firm to review its compliance and other instances of historic non-compliance including two incorrect provisions and expected loss adjustments in its capital adequacy calculation, areas where internal risk management calculations were carried through to market risk capital calculations, and other minor technical mistakes.

"These calculation errors have now been corrected for the three months ended September 30, 2017," ASB said in its latest disclosure statement. "These errors did not cause the bank to breach any of its required minimum capital ratios or breach the minimum buffer ratio requirements of condition of registration 1C", which outlines the steps the bank has to take if its capital buffer gets too low.

Banks' compliance has come under greater scrutiny this month after Westpac Banking Corp's New Zealand unit was censured by the Reserve Bank for a long-running breach of its obligations by using unapproved internal models, and forced to lift its minimum capital requirements. The central bank's six-monthly gauge on the health of New Zealand's financial sector is due for release tomorrow.

ASB's total capital ratio of 13.8% as at September 30 was well above the 8% minimum, while its buffer ratio was 5.7% compared to a 2.5% minimum.

In its March quarterly disclosure statement, ASB noted it miscalculated its risk-weighted exposures for some non-retail facilities since March 2008, which overstated its capital ratios, while in the June statement the bank said it hired a firm to independently validate its capital ratio calculations, which found two minor issues that didn't affect the previously reported ratios.


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