The culture at three of Australia’s biggest banks will cost them $500 million each after APRA has advised it will increase their minimum capital requirements.
APRA has written to ANZ, NAB and Westpac and advised them of a $500 million increase in their minimum capital requirements, which will apply until the banks have completed their planned remediation to strengthen risk management.
The APRA increase follows a decision by the regulator to apply a $1 billion capital add-on to CBA after the findings of the prudential inquiry.
It was this prudential inquiry that made APRA write to the boards of 36 of the country’s largest banks, insurers and super licensees asking them to gauge whether the weaknesses uncovered existed in their own companies.
APRA chair Wayne Byres said the self-assessments found that many of the CBA issues uncovered were not unique and there was a need to strengthen non-financial risk management and address weaknesses and enhance risk culture.
“Australia’s major banks are well capitalised and financially sound, but improvements in the management of non-financial risks are needed.
“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 longstanding gaps,” he said.
NAB chief executive and chairman-elect Philip Chronican said the bank’s own self-assessment set out a clear program of reform to ensure NAB met the highest standards.
Examples of the bank’s process includes a new customer outcomes framework to define the principles of all NAB products, $170 million in customer remediation and a 50 per cent reduction of small-business complaints.
Westpac Group chief executive Brian Hartzer said that 20 per cent of the bank’s self-assessment recommendations had been implemented and he found it a valuable exercise.
ANZ’s statement to the ASX was light on the ground, but the bank acknowledged the APRA additional capital.
“The major banks play a vital role in the stability of the entire financial system, and APRA expects them to hold themselves to the highest standards of risk governance,” Mr Byres said.
“Their self-assessments reveal 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,” he added.
Westpac and NAB both said that the change would reduce their common equity tier 1 capital ratio by approximately 16 basis points.
ANZ meanwhile said the capital overlay would represent a reduction of approximately 18 basis points on its CET1 capital ratio.