Westpac's New Zealand banking arm does not expect to fix its non-compliant risk management systems until next year, but insists it is making progress on the remediation program.The bank's auditor PriceWaterhouseCoopers confirmed on Monday that the Kiwi operation is continuing to use internal models to assess and manage credit risk despite severe objections from the Reserve Bank of New Zealand.PWC identified the continuing non-compliance as a matter for emphasis in its review of the subsidiary's half year accounts lodged with New Zealand regulators and the ASX on Monday."The bank continues to operate versions of certain internal models for credit risk that have not been approved by the Reserve Bank of New Zealand," PWC stated in its review of the accounts.However, the PWC auditors appeared to take some comfort from Westpac's assurance that its non-compliant credit models were "not considered to be material" in terms of the capital it put aside to cover credit risks.RBNZ's prudential officials might dispute the bank's assertion.In November last year the Kiwi regulator decided Westpac's compliance failures were of such gravity that it boosted the minimum Common Equity Tier One capital obligation of the New Zealand operation to 6.5 per cent from 4.5 per cent.The effect of this move was to lock up an extra NZ$436 million in CET One capital. "We believe the regulatory action is appropriate given the seriousness of Westpac's non-compliance and the need to protect the integrity of the capital regime," said RBNZ's head of financial stability, Geoff Bascand, in November.Westpac's steepened capital obligations will not be adjusted in line with the requirements of other New Zealand banks until it remediates the shortcomings in its risk management framework.The RBNZ found that 17 out of 35 capital models used by the bank did not have regulatory approval.These included Westpac's internal models for managing credit risk in relation to business loans and credit cards.The RBNZ also found that the bank failed to report changes in credit management policies, as it was required to do under New Zealand banking regulations.A Westpac spokesman said the bank was "making progress" to make its models compliant."Westpac New Zealand is working closely with the RBNZ on this issue," the spokesman said. "A remediation program is currently underway to overhaul the current models which should be completed within the next 12 months."The RBNZ review of Westpac's systems found many instances of non-compliance going back to 2008.Westpac enjoyed advanced accreditation in New Zealand for most of the last decade, which allowed it to claim discounts on capital risk weights that applied to loans it made.