The Australian Prudential Regulation Authority (APRA) has confirmed that Westpac Banking Corporation has successfully completed a multi-year risk transformation program, fulfilling the terms of a court enforceable undertaking (CEU) entered into in 2020.
As a result, APRA announced it will remove the remaining $500 million (US$324 million) capital add-on – a regulatory measure in place since 2019 following prudential weaknesses identified in Westpac’s risk management and governance practices.
Westpac said the decision will increase its Common Equity Tier 1 (CET1) capital ratio by about 17 basis points, reflecting a reduction in risk-weighted assets of A$6.25 billion and strengthening its balance sheet flexibility.
“As a systemically important bank, APRA expects Westpac to hold itself to the requisite standard of prudent risk management and governance practices,” APRA member Therese McCarthy Hockey said in a media release.
“Completion of this risk transformation program is a vital step in ensuring these expectations are consistently met. Our experience has shown us that effective risk transformation programs may continue to identify legacy issues, and we expect Westpac to maintain its unquestionably strong capital position.”
Westpac’s risk transformation program was launched after APRA’s 2020 investigation identified significant weaknesses in culture, governance, and accountability frameworks.
The CEU required Westpac to implement a comprehensive remediation plan addressing these deficiencies and their root causes.
In response, Westpac established the Customer Outcomes and Risk Excellence (CORE) Program, supported by an independent reviewer to ensure sustainable reform and monitor progress.
Westpac said the CORE Program delivered a period of “significant risk transformation,” marking the completion of a six-year overhaul of its risk and culture frameworks.
Independent reviewer Promontory noted that “the depth of change to the organisation, both structurally and culturally, means that Westpac is now a simpler, stronger bank.”
APRA initially imposed two separate $500 million capital add-ons in July and December 2019 as a buffer against operational and compliance risks.
After monitoring Westpac’s progress under the CORE Program, APRA removed the first $500 million tranche in July 2024, citing substantial improvements in governance and risk frameworks. The remaining requirement stayed in place pending further validation.
Now satisfied that Westpac has met all conditions, APRA has lifted the final $500 million operational risk capital overlay with immediate effect.
Westpac CEO Anthony Miller (pictured) said the milestone marked a significant achievement in the bank’s transformation journey.
“Risk management is one of our five priorities, and this year we’ve been focused on embedding the improvement to our risk culture,” Miller said in a media release. “We can never forget the errors of the past and the importance of the work we have done over the past six years.”
“The positive changes in how we manage risk must now be maintained and continually strengthened. I’m grateful to all of our people who have contributed to our substantial improvement in risk management.”
The removal of the capital add-on completes Westpac’s multi-year remediation process and restores its capital settings to align with other major banks.
Westpac acknowledged APRA’s decision as confirmation of its progress in risk management and governance, and said the improvement reflects its commitment to maintaining a strong and sustainable risk culture.
Reuters reported that the regulator’s decision followed a five-year period of enhanced supervision and structural reform across Westpac’s operations. APRA said while the CEU has concluded, it expects the bank to continue strengthening its governance frameworks and risk culture.
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