The central bank of New Zealand has decided to increase supervision of the Bank of New Zealand (BNZ), the local subsidiary of National Australia Bank (NAB).

The Reserve Bank of New Zealand (RBNZ) took the decision following the detection of failures in BNZ’s capital calculation processes.

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The central bank also placed precautionary adjustments to BNZ’s capital requirements, as part of the measures undertaken.

In a statement, RBNZ noted that BNZ had made three capital calculation errors which led to misreported risk-weighted assets over multiple years.

These errors were identified by the lender itself during an ongoing remediation programme.

Now, BNZ needs to raise the risk weight floor of its operational risk capital model from NZ$350m to NZ$600m. The increase is categorised as supervisory capital overlay.

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The central bank sets a minimum amount of capital for each bank based on their respective risk quotient.

RBNZ said that BNZ did not flout minimum capital requirements, with the supervisory steps precautionary in nature.

RBNZ deputy governor Geoff Bascand said: “However given the likelihood that further compliance issues will be discovered during the review and remediation, the Reserve Bank regards a precautionary capital adjustment as prudent.

“The additional capital overlay will be removed when remediation is complete. It is the Reserve Bank’s expectation that the current review will identify all outstanding compliance issues and potential breaches.”

In the last one year, multiple banks reported breaches as the lenders are reassessing their governance, control and assurance processes, RBNZ stated.

Some of these failures involve regulatory capital or liquidity errors that went unnoticed for several years.