The Westpac Banking Corp (ASX: WBC) share price has climbed by 0.65% despite being slapped by a temporary 10% increase to its liquidity capital ratio (LCR) by the regulator, due to errors in calculations of its liquidity requirements going back to 2019.
At the time of writing, the Westpac share price is trading at $20.26.
What did the regulator say
The Australian Prudential Regulation Authority (APRA) has ordered Westpac to initiate an independent review of its systems, and apply a 10% increase to its liquidity ratio immediately until the matter has been fully investigated. This order came following the bank admitting to making several errors in its LCR calculations during the past two years.
LCR refers to the percentage amount of liquid assets such as cash or short-term securities that large banks are required to hold as reserves to meet their short-term financial obligations during a crisis event.
Westpac has since revealed that the problem stemmed from its New Zealand operations, and that it has now been rectified. Following Westpac’s revelation, the Reserve Bank of New Zealand says it’s now considering its options with regards to the bank’s LCR.
Westpac called “immature’ by APRA
In a busy day for Westpac, the news of the LCR breach happened just one hour before the bank released a statement on APRA’s response to Westpac’s deep-dive review into its risk governance. In that statement, Westpac said that APRA has now notified the bank of its progress, findings, and proposed next steps. In particular, APRA identified that Westpac has an “immature and reactive risk culture, unclear accountabilities, capability shortfalls and inadequate oversight.”
Westpac chief executive Peter King said, “We acknowledge the findings of APRA’s review and accept the need to work faster to address our shortcomings.”
As part of the next steps, Westpac says it expects to enter into an enforceable undertaking over risk governance remediation. The bank says it will work constructively with APRA on the detail of the enforceable undertaking, and expects to update the market when it is finalised.
Westpac share price in 2020
Westpac has had a year to forget. In September, the bank agreed to pay the largest fine in Australian corporate history — a $1.3 billion civil penalty for more than 23 million breaches of anti-money laundering laws.
The Westpac share price has lost around 19% in 2020. This fall is also partly due to the subdued markets arising from the COVID-19 pandemic.
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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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