The Reserve Bank (RBNZ) has ordered Westpac New Zealand to hold more cash and get two independent reports over concerns about the bank's compliance with liquidity rules.
Westpac was found to have breached mismatch ratio requirements under the RBNZ's liquidity policy, which is a measure of a bank's liquid assets to ensure it was stable during a period of stress.
The central bank said Westpac failed to comply with the standards because it was not calculating the ratios correctly over an eight year period from 2012 to 2020.
"Furthermore, the bank has continued to operate outside of its own risk settings for technology for a number of years," RBNZ deputy governor Geoff Bascand said.
The miscalculations have since been corrected and the RBNZ was confident in Westpac current liquidity position, but it wanted to make sure that Westpac NZ had done the work and the changes were effective.
"Westpac NZ needs to take a close look at its risk governance practices," Bascand said.
"To ensure this happens we are requiring them to provide an independent report that assesses Westpac NZ's risk governance processes and practices applied by the Westpac NZ Board and executive management."
The Reserve Bank was also calling for a second independent report to provide assurance that the steps its taken to improve their management of liquidity risks are effective.
Until the reports were completed, Westpac would be required to hold more cash or assets that can be turned into cash.
In a statement, Westpac New Zealand said it acknowledged the importance of liquidity and risk governance obligations and would comply with the Reserve Bank's requests.
Westpac's Australian parent has run into similar problems with Australia's banking regulator.
It's not the first time the RBNZ has disciplined Westpac for breaching banking rules.
In 2017 Westpac was ordered to increase its amount of capital and do an independent review of the models it was using to assess risk.