Bendigo Bank breached cash rules: APRA

The prudential regulator has taken aim at Bendigo and Adelaide Bank for breaching liquidity requirements since January 2015.

The rule breaches stem back to January 2015. Pictures: AAP Image

The prudential regulator has Bendigo and Adelaide Bank on a tight leash after imposing a penalty for breaches of its liquidity requirements until the completion of an independent review.

While the Australian Prudential Regulation Authority described the breaches as “material”, there was no impact on the overall soundness of the bank or its liquidity position.

Bendigo’s current liquidity coverage ratio (LCR) of 152.4 per cent, including the 10 per cent penalty for its transgression, was well above the minimum requirement of 100 per cent.

APRA deputy chairman John Lonsdale said APRA’s liquidity rules were designed to ensure that financial institutions had sufficient resilience to withstand an acute or longer-term stress scenario.

“Although Bendigo and Adelaide Bank’s breaches don’t impact the overall soundness of the liquidity position, APRA takes any breaches of its prudential requirements seriously,” Mr Lonsdale said.

“In taking these actions, our priority is to ensure the underlying causes of the compliance failures are properly identified and addressed.

“It also sends a message to the wider banking industry that such breaches of our prudential standards are not acceptable, and APRA will respond in a commensurate manner, including applying penalties where appropriate.”

Liquidity is the ability to access cash when it’s needed, or for banks the capacity to be able to pay depositors their money.

APRA therefore requires banks to hold a minimum level of liquid assets which can be easily and quickly converted to cash to repay any funding withdrawals.

Last month, Bendigo self-reported to APRA multiple breaches of the prudential standard on liquidity, known as APS 210.

The breaches arose from IT coding which incorrectly classified some retail deposits in the most stable – or “sticky” – category of the LCR.

Bendigo said this resulted in an understatement of the expected net cash outflow and an overstatement of the LCR since January 2015.

“The bank recognises the significance of this matter and is actively working with APRA,” it said in an ASX announcement.

“The identified issues have been rectified and reviews are underway, including independent testing of the LCR calculation.

“Further internal and independent reviews will be undertaken as required.”

The penalty imposed by APRA was an overlay of 10 per cent to net cash outflows from November 2, which would remain in place until all required reviews were completed and all findings were addressed to the regulator’s satisfaction.

After correcting the errors, Bendigo said its average LCR over the last 14 days was 160.9 per cent.

The current LCR at October 19 was 167.7 per cent, or 152.4 per cent including the overlay.

“The bank maintains a strong financial, liquidity and capital position,” Bendigo said.

The comprehensive review of Bendigo’s compliance with liquidity requirements will be undertaken by an independent third party.

APRA will also require a restatement of relevant disclosures for the preceding 24-month period.

Further action is possible, with APRA waiting for the outcome of an internal Bendigo review before determining if more regulatory measures were required.