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Westpac and these banking giants have just been slapped with a $500 million penalty

In early trade the Westpac Banking Corp (ASX: WBC) share price has dropped lower following an announcement relating to its Culture, Governance and Accountability (CGA) self-assessment process.

At the time of writing the banking giant’s shares are down 0.5% to $27.73.

What was announced?

This morning APRA provided the bank with a response to its CGA self-assessment process.

According to the release, APRA has decided to apply an additional $500 million to Westpac’s operational risk capital requirement.

The regulator made the move after concluding that Westpac was required to improve its management and oversight of non-financial risk. The capital add-ons will apply until the bank has completed its planned remediation to strengthen risk management, and closed gaps identified in self-assessments.

The $500 million requirement will be applied through an increase in risk weighted assets from the end of September 2019. This change is expected to reduce Westpac’s Level 2 common equity tier 1 (CET1) capital ratio by approximately 16 basis points.

At its last update, the bank’s CET1 capital ratio stood at 10.64%.

Westpac’s 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’s chief risk officer, David Stephen, is leading the work to implement the self-assessment’s recommendations. As of today, around 20% of the recommendations have been implemented.

Other banks impacted.

But Westpac isn’t alone with this. Both Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) have also been ordered to increase their minimum capital requirements by $500 million each.

Unsurprisingly, their shares are also trading lower on Thursday morning.

The increase in capital requirements follows APRA’s decision last year to apply a $1 billion dollar capital add-on to Commonwealth Bank of Australia (ASX: CBA) in response to the findings of a prudential inquiry into Australia’s largest bank.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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