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On 24 March, Westpac Banking Corporation (NZX:WBC, ASX:WBC) revealed that the bank was looking at the sale of its NZ operations and was taking into consideration whether a demerger would be in the best interest of its shareholders.
Westpac is the third-largest bank in NZ with about 1.3 million customers. Westpac NZ has been a valuable and strong earner for the parent Group.
Westpac stated in an update that it was high time to evaluate the right arrangement for its NZ businesses, considering shifting capital needs in NZ and the RBNZ's demand of separating Westpac's NZ business activities from its Australian operations.
The bank stated that it would also take into account the impact of RBNZ’s reviews.
Source: © Esmehelit|Megapixl.com
Westpac was ordered to pay for 2 independent reports into risk governance practices by RBNZ. The Reserve Bank pointed to compliance issues with Westpac NZ after the company’s failure in reporting liquidity appropriately and in accordance with RBNZ’s liquidity obligations. The central bank increased the bank’s required holding of liquid assets until RBNZ is satisfied with the remediation work of Westpac NZ.
Other Kiwi banks might follow Westpac
RBNZ ordered the Australian banking system to increase its operational independence and bolster capital levels in late 2019. Last year, Westpac reported that the New Zealand bank would need between $1.6 billion and $2.2 billion in increased funding to satisfy the RBNZ's new capital criteria, which are expected to take effect in 2028.
The pressure from RBNZ to carry more capital and the need for structural separation of Australian and NZ operations has led Westpac to consider selling off its NZ operations.
DO READ: RBNZ voices concerns over Westpac’s breach of liquidity norms
The other banks within the Kiwi banking system, Australia and New Zealand Banking Group, Commonwealth Bank, and National Australia Bank, might follow Westpac as high costs have confronted the viewpoints of the Australian-headquartered Big 4 lenders.
Alterations proposed in the regulatory and capital requirements along with the introduction of more measures to cool off the housing market by RBNZ have led Australian banks that own a NZ bank difficult as profitability becomes challenging.
Government to examine Westpac's position as NZ’s banker
On 25 March, Grant Roberson, Deputy PM of NZ, stated that he would consider moving more of government’s banking away from Westpac in the next review in 2023.
Westpac has appointed Macquarie to consider the sale of its NZ arm, which could result in a listing on NZX at a valuation of ($7 billion-$10 billion).
Robertson stated that if Westpac New Zealand was listed on the stock exchange, it would have fantastic prospects for Kiwis to invest while also deepening the country's financial markets.
He also added that it would be the duty of RBNZ to make sure that those who did banking with Westpac were safeguarded and assisting if Westpac were to sell.
