Westpac Bank (ASX: WBC), in a filing with the Australian Stock Exchange, said that it reclassified the allocation of loan purpose between owner-occupied and investment housing to better reflect the purpose of the loan.

The loans involved total $28.8 billion spread over three years. Westpac, Australia's second largest bank, recorded the loans since November 2008 as owner-occupied when these homes were made for investment purposes.

However, the reclassification angered the opposition and the Australian Prudential Regulation Authority (APRA). Westpac did not notice the error but it was discovered during an internal review and the bank promptly informed the regulator about the mistake in classification. Reports said that APRA was not happy with the errors.

APRA mandates that revisions of $100 million that is at least 10 per cent of the stated value should be reported to the market.

The ASX said the changes were part of a legacy adjustment after Westpac's merger with St. George in 2008. Westpac said the change has no impact on its risk profile.

"But the risk really relates to the individual, not the property. The real risk in the mortgage is whether people can continue to pay or not. We lend based on people's capacity to repay," Westpac said in a statement.

In some cases, the borrower listed the mortgaged property as their main residence, but later used to equity to buy an investment property. Westpac said that the changes would not requirement amendments to the bank's financial reports since APRA requires a different level of details compared to accounting standards.

As a result of the reclassification, loans used for investment housing jumped to $116.8 billion from $88.6 billion and loans for owner-occupied housing went down to $165.2 billion from $198.6 billion.

"Westpac appears to have made a substantial correction. A more detailed explanation from the bank... would give greater confidence to consumers and investors," The Australian quoted opposition Treasury spokesperson Julie Bishop.

Westpac also revised the size of loans to financial corporations to $11.3 billion from $10.1 billion and liabilities to clearing houses and financial institutions to $5.2 billion from $6.2 billion.

An APRA report released on Tuesday said that of the $1.07 trillion home loans on books of Australian banks, Westpac holds the second largest portfolio with $283 billion. The biggest was held by the Commonwealth Bank of Australia with $305 billion. The four largest banks control 86.7 per cent of the home loan market, slightly down from 87.3 per cent a year ago.