It acknowledges improvements in the bank's risk governance and management
The Australian Prudential Regulation Authority (APRA) has slashed the $1 billion capital add-on imposed on Westpac Banking Corporation due to the bank’s progress in improving its risk governance, culture, and risk management.
APRA initially applied a $500 million capital add-on to Westpac in July 2019 following its risk governance self-assessment, which identified higher operational risks. Another $500 million was added in December 2019, reflecting heightened operational risks primarily related to risk governance concerns.
In December 2020, Westpac entered a Court Enforceable Undertaking (CEU) with APRA, committing to address weaknesses in its culture, governance, and accountability. The bank established the Customer Outcomes and Risk Excellence (CORE) Program and appointed an independent reviewer to oversee improvements.
Acknowledging the progress under the CORE program, APRA has reduced the add-on to Westpac’s operational risk capital requirement by $500 million, effective immediately.
“In recognition of the progress and improvements delivered by Westpac under CORE, APRA has halved the add-on to its operational risk capital requirement, effective immediately,” the regulator stated.
“The remaining $500 million capital add-on will remain in place until Westpac completes its transition work and APRA undertakes further validation work to assess the sustainability of improvements made in risk governance, culture and accountability practices and outcomes.”
According to Westpac, the removal of $500 million from the capital risk overlay will increase the Common Equity Tier 1 (CET1) capital ratio by about 18 basis points, due to a $6.25 billion reduction in risk-weighted assets.
“Westpac is now a simpler, stronger bank with substantially improved risk governance,” said Peter King, chief executive of Westpac. “We have moved into the transition period, which involves sustainably embedding the uplift in risk management practices.”
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