The Bank of Queensland Ltd (ASX: BOQ) share price dropped 5.7% in May 2023, compared to a 3% drop for the S&P/ASX 200 Index (ASX: XJO). To underperform the index by more than 2.5% in a month is a sizeable difference.
The ASX bank share has gone through the volatility caused by higher interest rates, which has affected banks in a number of different ways. It's increasing the risk of borrowers struggling to make repayments, yet competition remains quite intense in the industry.
During the month, the ASX bank share made an announcement that hurt investor confidence. Let's have a look at what happened.
Enforceable undertakings
BOQ announced an update on internal and external reviews that had led to "identification of deficiencies in its operational resilience, risk culture and governance, and anti-laundering and counter-terrorism financing program".
The ASX bank share said it has entered into a voluntary enforceable undertaking with APRA "addressing remediation of weaknesses in BOQ's risk management practices, controls, systems, governance and risk culture".
APRA also decided to apply a "capital adjustment" to BOQ's minimum capital requirements, adding $50 million to the bank's operational risk capital requirement.
Bank of Queensland shares may also have been affected by the voluntary enforceable undertaking with AUSTRAC. This concerns the remediation of issues relating to BOQ's anti-money laundering and counter-terrorism financing program.
BOQ said it remains committed to the remediation, and the commitments it has entered into with both APRA and AUSTRAC will "serve as a platform to continue the work commenced under the previously announced 'integrated risk program'".
The ASX bank share pointed out it announced a provision for its 'integrated risk program' and has made "good progress in strengthening its financial resilience and holds strong capital and liquidity buffers".
At the time of the update, BOQ chair Warwick Negus said:
We have acknowledged the concerns raised by APRA and AUSTRAC. BOQ remains committed to its multi-year Integrated Risk Program to build a stronger and simpler bank with an uplift in risk culture, frameworks, processes and controls. This program will be independently reviewed as previously announced and we will continue to work proactively and transparently with APRA and AUSTRAC. Our digital transformation is complementary to this strategic priority as we decommission multiple complex legacy systems and reduce our reliance on manual processes.
Foolish takeaway
It will be at least four months until investors get to see the ASX bank share's FY23 full-year result, which could be its most important announcement during the rest of 2023. Bank of Queensland shares have suffered in the last several weeks, but if confidence returns on the banking sector more broadly then BOQ could benefit as well.
