APRA winds back additional Westpac liquidity requirement

The financial regulator has removed an additional liquidity requirement put on Westpac in 2020.

The financial regulator has wound back an additional liquidity requirement it put on Westpac for breaching prudential standards, saying the big four lender has since remediated the issues to its satisfaction.

The Australian Prudential Regulation Authority in December 2020 took action against Westpac in response to “material breaches that demonstrated weaknesses in the bank’s risk management and oversight, risk control framework and risk culture in its liquidity risk management and reporting”.

The breaches, identified in 2019 and 2020, related to the incorrect treatment of specific funding and loan products for the purposes of calculating both the Liquidity Coverage Ratio and the Net Stable Funding Ratio and led APRA to apply a 10 per cent add-on to the net cash outflow component of the lender’s LCR calculation.

At the time, the prudential regulator said the action sent “a message to the wider banking industry that breaches of prudential standards are not acceptable, and APRA will respond as appropriate, including by imposing penalties.”

“Westpac has since completed a program to remediate findings from an independent review into Westpac’s liquidity risk management to APRA’s satisfaction,” the regulator noted on Thursday.

Westpac said the removal of the add-on would contribute approximately 13 percentage points to its LCR. Westpac’s average LCR for the June 2022 quarter was 130 per cent.

“The add-on was first put in place by APRA in December 2020, following breaches of liquidity requirements, predominantly relating to Westpac New Zealand,” the bank said.

“Given the active management of our liquidity position, and that our LCR is already comfortably above the 100 per cent regulatory minimum, it is unlikely our reported average LCR will materially rise from current levels in future reporting periods.”

The removal of the liquidity add-on is effective from September 1, making it a little under two years that the additional buffer was in place.

A separate capital requirement add-on of $1bn to reflect Westpac’s heightened operational risk profile following its widespread breaches of anti-money laundering rules, remains in place.

ASX-listed Westpac, in 2020 agreed to pay a $1.3bn penalty for more than 23 million contraventions of anti-money laundering laws, which occurred over a period of six years.

Westpac shares were down 1.25 per cent at $21.34 in afternoon trade.