Tuesday, December 1, 2020

Australian regulator tells Westpac, ANZ, NAB to set aside another $350 mln

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

The move is an indictment of the banks’ efforts to improve governance following a series of scandals and a damaging public inquiry into finance sector wrongdoing last year, and could reduce funds otherwise available for dividends.

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“Australia’s major banks are well-capitalised and financially sound, but improvements in the management of non-financial risks are needed,” Australian Prudential Regulation Authority (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.”

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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, APRA said.

Australia’s largest lender, Commonwealth Bank of Australia (CBA.AX), was lumped 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 risk-assessment systems. The process confirmed that “many of the issues” revealed by the money-laundering scandal were “not unique to CBA”, the regulator said on Thursday.

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.

Macquarie and Goldman Sachs banking analysts said APRA’s expectation of banks to complete remediation for wronged customers and strengthen risk management would put pressure dividends.

“We see the risk of a Westpac dividend cut in the upcoming result,” Macquarie said in a note to clients.

National Australia Bank has already slashed its dividend this year but given the expected increase in capital in New Zealand, the bank’s “capital position appears light”, the broker said.

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

A Westpac media representative did not return an email seeking comment on future dividend payments.

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.

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