Only NZ's four major banks, which are owned by the four major Australian Banks, are permitted to use internal models for calculating their capital requirements – all the other NZ banks have to use the standardised models.
The competitive advantage the big four have gained is that they need less capital than their smaller competitors – just how much of an advantage that can be was revealed in February last year – ANZ needed to hold slightly more than half as much capital as Kiwibank does for each $100 of mortgage lending.
In its latest report, Deloitte found ANZ was still using 17 out of 33 unapproved wholesale credit models and that a minor portfolio with exposure at default of $45.9 million had been treated as standardised without RBNZ approval.
The bank had also failed to properly maintain a compendium of models that had been approved by RBNZ.
"It should be noted that these current non-compliance issues occurred historically – prior to 2013 for credit risk models and 2014 for the operational risk model," Deloitte said.
"However, most were not identified until recently" as a result of Deloitte's reviews.
Historical areas of non-compliance included changing three out of 19 retail models for credit cards without RBNZ approval and changing 15 out of 35 wholesale models without RBNZ approval.
Deloitte could find no evidence that ANZ had used scenario analysis to test its ORC before it was decommissioned in 2014 when the bank began to use the unapproved ORC model.
ANZ didn't have "a documented process to identify, assess and notify" compositional changes in its loan book, even though Deloitte didn't identify any compositional changes.
And while ANZ had followed RBNZ's standard in its residential mortgage loan valuation process, it hadn't documented its process for confirming and maintaining a list of approved valuers.
Deloitte also makes it obvious that ANZ's head office in Melbourne hasn't been rigorous in ensuring its New Zealand subsidiary complies with RBNZ requirements.
"Model changes are approved through ANZ global group committees with ANZ NZ representation," the accounting firm said.
"However, the group committees do not specifically document ANZ NZ ability to reject changes impacting on the NZ portfolio," it said.
When it comes to assessing qualitative operational risk, "group policies do not consistently reflect (RBNZ) requirements," Deloitte said. In some cases, only APRA – Australian Prudential Regulation Authority – requirements are documented."
ANZ said it welcomed the release of the second section 95 report commissioned by RBNZ.
Grant Knuckey, ANZ NZ chief risk officer, said the report confirmed many of the conclusions of the first section 95 report that was published late last year.
"The reviews highlighted the need for a broader programme of process improvement, which is underway. They have been useful in helping ANZ NZ understand root causes and correcting them."
On releasing Deloitte's latest report, RBNZ Deputy Governor Geoff Bascand said the prudential regulator will work with ANZ NZ to ensure its non-compliance is addressed.
"We have discussed the finding of the latest … report with ANZ. They have been forthcoming with their desire to address this and we are confident that ANZ will resolve this matter without issue," Bascand said in a statement.
"ANZ remains sound and well capitalised," he said.
Last year, RBNZ had ordered ANZ NZ to switch from using an internal ORC model to using the standardised model.
The revelations about ANZ NZ's non-compliance follow similar problems of non-compliance by Westpac NZ made public in November 2017.
