July 11, 2019

APRA is applying additional capital requirements to three major banks in Australia to reflect higher operational risk identified in their risk governance self-assessments. The minimum capital requirement of ANZ, National Australia Bank, and Westpac is being increased by USD 500 million each. The capital add-ons will apply until the banks have completed their planned remediation to strengthen risk management and have closed gaps identified in their self-assessments.

APRA supervisors continue to provide tailored feedback to other banks, insurers, and superannuation licensees that provided self-assessments to APRA. Where weaknesses have been identified, the level of supervisory scrutiny is being increased as remediation actions are implemented. Where material weaknesses exist, APRA is also considering the need for the application of an additional operational risk capital requirement.

This increase in capital requirements follows APRA’s decision, in May 2018, to apply a USD 1 billion capital add-on to the Commonwealth Bank of Australia in response to the findings of the APRA-initiated prudential inquiry into the bank. Following the final report of the inquiry, APRA wrote to the boards of 36 of the largest banks, insurers, and superannuation licensees in the country asking them to gauge whether the weaknesses uncovered by the inquiry also existed in their own companies. Although the self-assessments raised no concerns about financial soundness, it was confirmed that many of the issues identified in the inquiry were not unique to the Commonwealth Bank of Australia. This included the need to strengthen non-financial risk management, to ensure that accountabilities are clear, cascaded, and enforced,  and to address the long-standing weaknesses and enhance risk culture.

 

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Keywords: Asia Pacific, Australia, Banks, Capital Requirements, Operational Risk, ANZ, National Australia Bank, Westpac, Regulatory Capital, APRA

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