Westpac defends culture as banks told to lift capital requirements by $500m each

Westpac says its culture problems aren’t as prominent as at CBA, as three banks each took a $500m “risk” hit.

Westpac CEO Brian Hartzer says “prominent behavioural characteristics at CBA....are not similarly prominent at Westpac”. Picture: AAP

Westpac claims its risk and culture deficiencies are not as bad as the Commonwealth Bank’s, despite it being forced to hold an additional $500 million in extra capital because of gaps in its risk governance.

In its self-assessment on culture, governance and accountability, submitted to APRA last year and released by the bank today, Westpac said bad behaviour seen at CBA was not present to the same extent at the nation’s second largest lender.

“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.

It comes as APRA today said it will force three of the big four banks to each carry an extra $500 million in capital as it criticised them for their substandard risk governance.

The financial regulator imposed the additional capital requirements on ANZ Bank, National Australia Bank and Westpac after it reviewed their culture, governance and accountability (CGA) self-assessments and found they had “fallen short in a number of areas”.

The capital charges are, however, less than the additional $1 billion in regulatory capital imposed on Commonwealth Bank of Australia by APRA last year, following its inquiry into the nation’s largest lender.

The banks will be forced to hold the extra capital add-ons until they strengthen their risk management and resolve any weaknesses, APRA said.

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

The lenders would have to look at the root causes of the issues, including complexity, unclear accountabilities, weak incentives and cultures that had been too accepting of longstanding gaps, he added.

“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. 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,” Mr Byres said.

In an update to shareholders, Westpac said the extra $500m would be applied through an increase in risk-weighted assets and would reduce its level two CET1 capital ratio by 16 basis points.

CEO Brian Hartzer agreed the bank needed to improve its risk management and said it was working through the issues raised.

“Our board and senior executives are committed to addressing the shortfalls identified in the report and will continue to provide regular updates on our progress,” he said.

The bank has so far implemented 20 per cent of the recommendations that came out of its self-assessment, he said.

In a note to shareholders, ANZ Bank said the additional capital requirement would have an 18 basis point impact on its CET 1 capital ratio.

Each of the banks’ self-assessments, submitted to APRA last year, identified a litany of shortcomings in their risk, governance and culture.

Some of the issues identified by NAB, which released its self-assessment last November, included that that executives did not apply “sufficient intensity and urgency” to longstanding issues and failed to move quickly enough to address weaknesses once recognised.