Australian banking majors told to boost capital after regulator finds risks

Sydney Tower Eye, Sydney, Australia. Photo: Seb Zurcher/unsplash

Australia’s prudential regulator has ordered three of the nation’s largest banks to increase their capital holdings after finding weaknesses in risk management akin to those at Commonwealth Bank of Australia.

National Australia Bank Ltd., Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. will need to hold a additional A$500 million ($348 million) each, the Australian Prudential Regulation Authority said in a statement Thursday. The capital buffer will be removed once they’ve improved their risk management and accountability, APRA said.

The regulator had already imposed a A$1 billion capital add-on to Commonwealth Bank in May last year after finding that a widespread sense of complacency was behind a massive breach of anti-money laundering laws at the lender. APRA then asked the other banks to gauge whether such weaknesses existed at their companies, and found that many of the issues weren’t unique to CBA.

“Australia’s major banks are well-capitalized and financially sound, but improvements in the management of non-financial risks are needed,” APRA Chairman Wayne Byres said in the 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,” he said.

Shares of ANZ Bank fell as much as 1.3% on Thursday morning, while Westpac declined as much as 0.8% and National Australia Bank slid 0.5%.

ANZ Bank said the increase in capital will impact its Common Equity Tier 1 ratio by 18 basis points, effective from Sept. 30. NAB and Westpac expect a 16 basis-point impact.

“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,” Byres said.