APRA removes NAB’s $500m culture penalty

The prudential regulator has removed a $500m capital add-on it slapped on NAB five years ago, but keeps quiet on Westpac and ANZ penalties.

APRA has removed a capital add-on it imposed on NAB in 2019 following improvements in its risk culture. Picture: John Gass/NCA NewsWire

The prudential regulator has lifted a $500m capital hit it slapped on National Australia Bank five years ago but has made no move to remove similar penalties imposed on ANZ Bank and Westpac.

The Australian Prudential Regulatory Authority in 2019 forced three of the big four to each carry an extra $500m on their balance sheets as it panned them for substandard risk governance.

The watchdog on Wednesday said it had removed the capital add-on imposed on NAB, adding that the lender had addressed its risk governance issues.

“APRA is now satisfied that NAB has completed its remediation program and adequately addressed the issues raised in its risk governance self-assessment. As a result, APRA has removed the $500m capital add-on effective immediately,” the regulator said in a statement.

The penalties imposed on the lenders – CBA was forced to hold an additional $1bn from an earlier date – capped off a horror run for the sector following the 2018 banking royal commission, which exposed widespread misconduct and resulted in billions of dollars being paid out in compensation.

The add-ons came about after the lenders submitted damning self-assessments that identified glaring gaps in accountability and risk culture.

Although the self-assessments raised no concerns about financial soundness, they confirmed that many of the issues identified in a 2017 prudential inquiry of CBA in were not unique to that bank, APRA said at the time.

Issues identified by the regulator included the need to strengthen non-financial risk management, to ensure clear and enforced accountabilities, to address longstanding weaknesses and enhance risk culture.

In its own self-assessment submitted to APRA and released publicly in 2019, Westpac argued its problems with corporate culture were not as bad as cross-town rival CBA.

“The prominent behavioural characteristics at CBA identified by the Prudential Inquiry, particularly a sense of chronic ease, complacency, and certain governance-related issues, are not similarly prominent at Westpac,” the bank said at the time.

Six months later, APRA added a further $500m capital penalty on to Westpac, as it launched an investigation into the lender for breaching anti-money laundering laws.

“The capital add-on will remain in place until APRA is satisfied that deficiencies in risk governance have been adequately remediated,” the regulator said at the time. The $1bn penalty is still in place.

CBA, meanwhile, had its own capital add on removed in 2022 after the lender addressed weaknesses in its governance, accountability and risk culture frameworks and practices.

APRA member Therese McCarthy Hockey on Wednesday pointed to the importance the regulator places on risk culture in the banking sector.

“National Australia Bank is a well-funded and strongly capitalised institution, however it is just as important that the entities we oversee have effective governance and risk management cultures,” she said.

“Where our regulated entities fall short in these areas, APRA won’t hesitate to use its full suite of enforcement power to protect the community from potential harm.”

Originally published as APRA removes NAB’s $500m culture penalty