Three of Australia’s biggest banks may need to call on additional capital requirements to reflect higher operational risk identified in their risk governance self-assessments.
The Australian Prudential Regulation Authority (APRA) has written to ANZ, National Australia Bank (NAB) and Westpac advising of an increase in their minimum capital requirements of $500 million each. The capital add-ons will apply until the banks have completed their planned remediation to strengthen risk management, and closed gaps identified in their self-assessments, the regulator noted.
The move follows APRA’s decision in May last year to apply a $1 billion dollar capital add-on to Commonwealth Bank of Australia (CBA) in response to the findings of the APRA-initiated Prudential Inquiry into CBA. After the CBA inquiry’s final report, APRA wrote to the boards of 36 of the country’s largest banks, insurers and superannuation licensees and asked them to gauge whether the weaknesses uncovered by the inquiry also existed in their own companies. The self-assessments confirmed that many of the issues identified were not unique to CBA.
“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.”
Byres highlighted that the APRA expects the major banks to hold themselves to the highest standards of risk governance.
“APRA supervisors continue to provide tailored feedback to other banks, insurers and superannuation licensees that provided self-assessments to APRA,” the regulator added. “Where weaknesses have been identified, the level of supervisory scrutiny is being increased as remediation actions are implemented. Where material weaknesses exist, APRA is also considering the need for the application of an additional operational risk capital requirement.”
