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APRA identifies incorrect liquidity reporting at Westpac Banking Corporation (ASX:WBC)

  • December 01, 2020 01:29 PM AEDT
  • Kunal Sawhney
    CEO Kunal Sawhney
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    Kunal Sawhney is founder & CEO at Kalkine and is a richly experienced and accomplished financial professional with a wealth of knowledge in the Australian Equities Market. Kunal obtained a Master of Business Administration degree from University of T...

APRA identifies incorrect liquidity reporting at Westpac Banking Corporation (ASX:WBC)


  • APRA has asked Westpac to undertake an independent review of liquidity reporting requirement practices.
  • The regulator also unveiled a similar breach at the Bendigo & Adelaide Bank in October 2020. 
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The Australian Prudential Regulation Authority (APRA) has launched an action against Westpac Banking Corporation (ASX:WBC). The enforcement action is over the material breaches of liquidity standards set by the regulator. 

APRA became aware of the breaches between 2019 and 2020. The violations are related to incorrect treatment of items for calculating Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio. 

Westpac had treated specific funding and loan products incorrectly. It reported a Liquidity Coverage Ratio of 151% and Net Stable Funding Ratio of 121.7%. 

The bank has rectified the breaches identified by the regulator, which said the breaches do not raise concerns regarding the overall resilient liquidity position of the bank. 

© Kalkine Group 2020

The regulator noted that the incorrect treatment of funding and loan products underscores the weakness in risk management, oversight, risk culture, and risk control framework. 

It has asked Westpac to undertake a comprehensive review by an independent third party. APRA seeks a review of Westpac’s compliance against the prudential liquidity reporting requirements. 

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The independent reviewer would also assess remediation of Westpac’s control framework of liquidity risk management. 

Related: Westpac slashes dividend as profit nosedives by 66%

APRA has imposed a 10% add-on to the net cash outflow component on LCR calculation by the bank. The add on requirement would remain in place until independent reviews satisfy the regulator. 

In December last year, the regulator had applied an additional $1 billion to Westpac’s operational risk capital requirement in the advent of the bank’s breaches of anti-money laundering code and AUSTRAC compliance.

The $1 billion capital add-on continues to be in place, and a review by the regulator is ongoing. The regulator expects add-on risk capital requirement to apply until deficiencies in risk governance are adequately remediated. 

A similar breach at Bendigo and Adelaide Bank

Earlier in October, APRA reported a similar breach by the Bendigo and Adelaide Bank (ASX:BEN). It was noted that a coding error has led to an error in the calculation of Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio. 

© Kalkine Group 2020

BEN has incorrectly classified some retail deposits as the most stable category deposits for the calculation of Liquidity Coverage Ratio and Net Stable Funding Ratio. 

It had led to an incorrect reporting of LCR since January 2015. The bank was also asked to undertake internal and independent reviews of the matter. 

A similar 10% add on the net cash outflow component of LCR calculation was also imposed by the regulator. The add on would remain in place until the regulator is satisfied with the independent reviews. 

On 1 December 2020, WBC was trading at $20.30, up by 1.04% from the previous closing price, (AEDT: 1:00PM). 


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