Business

APRA tells banks to set aside extra $1.5bn

APRA has told Westpac, NAB and ANZ to set aside $500m in additional capital. (AAP)

Westpac, NAB and ANZ have each been told to set aside $500 million in additional capital until they have strengthened risk management and remediated customers.

Westpac, NAB and ANZ have been ordered to set aside an extra $1.5 billion in capital until they have finished refunding customers for their various wrongdoings and got better at spotting risk.

The Australian Prudential Regulation Authority on Thursday said it had written to Westpac, NAB and ANZ to tell them they each need to hold an extra $500 million in capital.

The instruction followed APRA's decision in May last year to apply a $1 billion capital add-on to Commonwealth Bank in response to the findings of the APRA-initiated prudential inquiry that followed its money laundering scandal.

APRA Chair Wayne Byres on Thursday said Australia's big four banks were still falling short when it came to identifying risk, which in CBA's case led to it breaching money-laundering laws and a $700 million fine - the largest civil penalty in Australian corporate history.

"Australia's major banks are well-capitalised and financially sound but improvements in the management of non-financial risks are needed," Mr Byres said.

"This will require a real focus on the root causes of the issues that have been identified, including complexity, unclear accountabilities, weak incentives and cultures that have been too accepting of long-standing gaps."

CBA's major rivals were among 36 institutions asked by APRA to look at their own risk assessment systems in the light of a report that had suggested many issues were "not unique to CBA".

NAB, ANZ and Westpac did so and reported back to APRA, although only NAB had made its self-assessment public until Westpac followed suit on Thursday.

Westpac's self-assessment said some of the issues at CBA resonated with Australia's second largest lender and chief executive Brian Hartzer said executives were committed to addressing shortfalls.

"(But) 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 report said.

ANZ had yet to release its self-assessment.

The big four banks have together shelled out more than $5 billion in customer remediation over the past two years in the wake of damaging revelations at the financial services royal commission.

The $500 million requirement, to be applied through an increase in risk weighted assets, will apply from September 30 and will remain until Westpac, NAB and ANZ complete their planned remediation to strengthen risk management, and close gaps identified in their self-assessments.

Mr Hartzer said 20 per cent of the recommendations in Westpac's review had been implemented, while NAB chief executive Philip Chronican advised work was underway on the 26 actions the company had identified.

"The board and executive leadership team take the findings seriously and we are moving forward with rigour and discipline to change the way we operate," Mr Chronican said.

The extra capital requirements are expected to reduce Westpac's level 2 common equity Tier 1 capital ratio by approximately 16 basis points.

Westpac's CET1 capital ratio at March 31 was 10.6 per cent.

ANZ said the requirements represented an 18 basis point impact on its CET1 capital ratio, while NAB it would have a 16 basis points effect based on its March 31 capital position.

In July 2017, APRA raised the amount of top quality capital the banks must hold to 10.5 per cent by January 2020 in order to meet the "unquestionably strong" benchmark in the 2014 financial system inquiry.

Banking stocks weighed on the ASX in early trade, but CBA, NAB and Westpac shares recovered ground during the afternoon to lift the sector by a collective 0.31 per cent by 1430 AEST.

ANZ stocks remained subdued, dropping 0.54 per cent to $27.38.

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