APRA lifts last $500m CBA capital charge, citing improvements

The prudential regulator has freed CBA of a remaining $500m capital charge, saying it was satisfied the lender had addressed a spate of weaknesses.

CBA chair Paul O’Malley and chief executive Matt Comyn are committed to governance improvements. Picture: Britta Campion

The prudential regulator has freed Commonwealth Bank of a remaining $500m capital charge, saying it was satisfied the lender had addressed a spate of weaknesses across governance, culture and accountability.

The Australian Prudential Regulation Authority on Friday said it was removing the remaining capital add-on, effective September 30.

The regulator initially slapped CBA with a $1bn capital charge – over and above its normal capital requirements – in May 2018 given a sweeping prudential inquiry uncovered a host of shortcomings and issues in the bank’s processes and conduct.

CBA was the subject of an enforceable undertaking that required a rigorous program of work and reporting to APRA to clean up its shoddy practices, some of which were fleshed out during the Hayne royal commission.

In late 2020, APRA cut the additional $1bn capital charge to $500m citing “recognition of CBA’s progress in addressing these issues”.

“APRA indicated at that time that the remainder would stay in place until CBA completed its full program of remediation, including addressing all recommendations from the final report, and APRA undertook validation work to ensure CBA’s remediations were sustainable and well-embedded,” Friday’s statement said.
“Satisfied that the above has been completed, APRA has removed the remaining capital add-on, effective 30 September 2022.”

CBA said the removal of the remaining capital add-on would add 15 basis points to its common equity tier one capital ratio, and committed to sustaining the changes required by APRA.

“We are committed to ensuring the improvements we’ve made to our governance, culture and risk management practices are continuously improved and sustained,” CBA chief executive Matt Comyn said.

“The release of the operational risk capital overlay follows the completion of CBA’s Remedial Action Plan (RAP) in September 2021, further validation work undertaken by APRA and satisfactory final assessments by the independent reviewer.”

CBA was not the only major bank to be hit with additional capital requirements due to poor governance systems and compliance processes. Westpac is still subject to a $1bn capital add-on given the bank facilitated money laundering and had lax processes to identify vulnerabilities that allowed its system to be used to fund child exploitation material.

Westpac’s conduct also led to a record $1.3bn penalty being paid to Austrac.

In mid-2019, during the fallout from the royal commission, APRA wrote to ANZ, National Australia Bank and Westpac to impose a capital charge of $500m apiece on them. APRA said those capital add-ons would apply until the banks completed planned remediation to “strengthen risk management, and closed gaps identified in their self-assessments”.

The corporate regulator this week said remediation had topped $5.6bn in payments to customers over the past six years, but warned that $1.6bn was still to be paid to almost 2.7 million customers.

The Australian Securities and Investments Commission is monitoring 36 remediation programs across superannuation, advice, credit, and banking and insurance players.

Separately, CBA on Friday said it had completed the divestment of its general insurance division to Hollard Holdings Australia which would add about nine basis points to its common equity tier one ratio.

That transaction included $625m in upfront consideration and deferred payments linked to various business milestones being hit. The deal – which was part of a much broader divestment spree by the bank – included a 15-year strategic alliance between CBA and Hollard on insurance products.