Australia’s Westpac, ANZ, NAB slapped with tougher capital requirements

FILE PHOTO: A pedestrian looks at his phone as he walks past a logo for Australia's Westpac Banking Corp located outside a branch in central Sydney
FILE PHOTO: A pedestrian looks at his phone as he walks past a logo for Australia’s Westpac Banking Corp located outside a branch in central Sydney, Australia, November 5, 2018. REUTERS/David Gray/File Photo

July 11, 2019

By Byron Kaye

SYDNEY (Reuters) – Three of Australia’s biggest banks will have to set aside an additional A$500 million ($348 million) each until they have strengthened risk management and reimbursed customers for wrongly charged fees, the prudential regulator said on Thursday.

Westpac Banking Corp <WBC.AX>, Australia and New Zealand Banking Group Ltd <ANZ.AX> and National Australia Bank Ltd <NAB.AX> – the country’s second, third and fourth-largest lenders – had been informed in writing of the additional capital requirements, the Australian Prudential Regulation Authority (APRA) said.

“Australia’s major banks are well-capitalised and financially sound, but improvements in the management of non-financial risks are needed,” APRA Chair Wayne Byres said in a statement.

“This will require a real focus on the root causes of the issues that have been identified, including complexity, unclear accountabilities, weak incentives and cultures that have been too accepting of long-standing gaps.”

Australia’s largest lender, Commonwealth Bank of Australia <CBA.AX>, was slapped with an additional A$1 billion capital requirement last year after it was accused of thousands of breaches of anti-money laundering protocols.

APRA then asked dozens of other financial services companies to report on their own their risk assessment systems, which it said on Thursday confirmed that “many of the issues” identified in its inquiry into the money-laundering scandal were “not unique to CBA”.

The companies’ self-assessments showed that “they have fallen short in a number of areas, and APRA is therefore raising their regulatory capital requirements until weaknesses have been fully remediated,” Byres said.

APRA added that it may impose more capital requirements on the sector without specifying which company.

“We acknowledge the need to improve non-financial risk management and oversight and we are working to resolve the issues raised,” Westpac CEO Brian Hartzer said in a statement.

The new capital requirement would cut Westpac’s common equity tier 1 capital by about 0.16 percentage points, the company added.

ANZ said the directive represented a 0.18 percentage point impact on its Common Equity Tier 1 capital ratio, but did not comment further.

NAB said the change would also cut its common equity tier 1 capital ratio by 0.16 percentage points.

“The board and executive leadership team take the (APRA) findings seriously and we are moving forward with rigor and discipline to change the way we operate,” the bank’s incoming Chairman Philip Chronican said.

Shares of ANZ were down 1.3%, while CBA and Westpac were down 0.7% and NAB was down 0.2% in a flat overall market.

(Reporting by Byron Kaye; Editing by Stephen Coates)

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