The bank has appointed advisers to weigh up whether to sell the NZ banking business, spin it off to shareholders, or keep it, according to the Australian Financial Review.

Westpac's Australian parent group has brought in bankers at Macquarie to run a review on the potential sale, the report said.

It comes after Westpac sold off some of its international businesses, including its operations in Papua New Guinea and Fiji.

A potential deal or sell-off would be a significant development in the NZ banking space. Westpac's history in New Zealand dates back to 1861, when the Bank of New South Wales opened branches across the country. 

Westpac NZ is one of the big four with about 1.3 million customers and a 19% share of the consumer lending market, and 18% of deposits.

The strategic review of the NZ business comes as Westpac and other big four lenders are put under pressure by the Reserve Bank's proposed capital adequacy rules.

Westpac will need to increase tier one capital to 16% of risk weighted assets, up from 13.5%. The Australian owned-banks have hit out at the plans, which will not be implemented until July, following a Covid-related delay.

The big four bank has also come under more regulatory scrutiny in recent months.

The Reserve Bank has ordered two independent reviews into the bank over regulatory and compliance failings, relating to liquidity and risk governance.