In a review of the banking sector released yesterday, Credit Suisse analysts assessed the level of operational risk in the Australian banking industry.
"Domestically, litigation has been relatively muted; however, the Senate inquiry into CBA's financial planning practices highlights the potential for litigation and issues going forward," said Credit Suisse.
Senate Economics References Committee chair Senator Mark Bishop has indicated that the Royal Commission into Commonwealth FP could cost the CBA around $250 million in "existing and expected compensation".
Litigation associated with the collapse of Storm Financial cost CBA around $270 million in 2013, according to Credit Suisse.
However, CBA is not alone when it comes to operational risks that stem from expensive litigation; sector-wide 'unfair fees' class action has cost ANZ about $57 million this year.
But while litigation attracts the most attention, operational risks encompass far more wide-reaching issues and often go somewhat unnoticed, at least in terms of classification, the Credit Suisse report said.
NAB's incorrect calculation of mortgage costs saw it cop an £8.9 million fine and a £21 million write-off which is expected to run into £42 million.
Both Bank of Queensland (BoQ) and ANZ incorrectly calculated interest rate charges in the past year, costing BoQ $34.5 million in refunds and ANZ $80 million in refunds and compensation.
"The global banking sector is facing substantial litigation costs, particularly in the past six to 12 months, with European settlements alone amounting to $19bn in 2013," Credit Suisse said.
"The Australian banking sector has largely avoided these substantial litigation costs. [However,] the current CBA financial planning inquiry highlights the possibility for operational risk charges to increase.
"Whilst the losses incurred by CBA are not likely to be significant, we seek to address the possibility that this may result in systemic charges and further attention paid to operational risks by the regulator, likely culminating in higher operational risk charges that are seen in overseas banking markets," Credit Suisse said.
