New APRA requirements has sent the Westpac Banking Corp (ASX: WBC) share price lower.
Westpac Banking Corporation, more commonly known as Westpac, is one of Australia’s ‘Big Four’ banks and a financial-services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and business. Its name is a portmanteau of “Western” and “Pacific”.
Westpac’s New APRA Requirements
Today, Westpac has received the Australian Prudential Regulation Authority (APRA) response to its’Culture, Governance and Accountability’ (CGA) self-assessment process.
The bottom line is that APRA has decided to apply an additional $500 million to Westpac’s operational risk capital requirement.
APRA concluded that Westpac is required to improve its management and oversight of non-financial risk and this additional capital requirement will remain in place until APRA is satisfied that Westpac has completed its action plan.
The CGA self-assessment was carried out by a joint team of Westpac employees and consultants from a global management consulting firm called Oliver Wyman. It looked at Board & executive governance, risk & compliance, customer, remuneration & accountability, and culture.
The $500 million requirement will apply from 30 September 2019 and will be applied through an increase in risk weighted assets (RWA). The change is expected to reduce Westpac’s Level 2 common equity tier 1 (CET1) capital ratio by around 0.16%, which was 10.64% at 31 March 2019.
Westpac CEO Brian Hartzer said: “The CGA self-assessment was a valuable exercise. We acknowledge the need to improve non-financial risk management and oversight and we are working to resolve the issues raised.
“Our Board and senior executives are committed to addressing the shortfalls identified in the report and will continue to provide regular updates on our progress.”
Westpac Share Price
The Westpac share price is down around 0.2% in reaction to this news. I’m all for banks being safer for the sake of our economy, they are too important for them to fail. However, it does likely mean that returns will be a little lower, although this measure seems to be only temporary.
Despite the large dividend yield, I’m not attracted to the idea of investing in Westpac shares, I’d much rather invest in the free report below instead.
[ls_content_block id=”14945″ para=”paragraphs”]
[ls_content_block id=”18380″ para=”paragraphs”]
