The Westpac Banking Corp (ASX: WBC) share price is down 1.37% to $28.09 in morning trading on Friday despite positive news on the bank's risk capital requirements.
The whole market is down today after Wall Street fell for a second day. The S&P/ASX 200 Index (ASX: XJO) is down 1.14% to 7,945.2 points, and not one market sector is in the green at the time of writing.
All of the Big Four ASX 200 bank shares are lower on Friday following yet another week of new share price milestones. All four banks set new multi-year highs this week.
To summarise:
- The National Australia Bank Ltd (ASX: NAB) share price hit a nine-year high of $38.08 yesterday
- Westpac shares rose to their highest level since November 2019 at $28.65 yesterday
- The ANZ Group Holdings Ltd (ASX: ANZ) share price hit a seven-year high of $30.23 yesterday
- Australia's biggest bank, Commonwealth Bank of Australia (ASX: CBA) reset its all-time share price high again on Wednesday at $134.25.
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What's the news with Westpac today?
The Australian Prudential Regulation Authority (APRA) has announced it will reduce Westpac's $1 billion operational risk capital add-on by $500 million.
APRA says it has chosen to do this in recognition of the bank's progress in improving its risk governance, culture, and risk management.
APRA imposed the $1 billion capital add-on in two instalments in 2019.
The regulator initially ordered a $500 million capital add-on in July 2019, given the higher operational risk that Westpac had identified itself in its Risk Governance Self-Assessment.
APRA then asked the bank to hold an additional $500 million in December 2019. This was because APRA viewed the bank as having heightened operational risk, primarily due to risk governance issues.
A year later, Westpac entered into a Court Enforceable Undertaking (CEU) with APRA in which it committed to addressing weaknesses in its culture, governance, and accountability.
Westpac established its Customer Outcomes and Risk Excellence (CORE) Program and appointed an independent reviewer. APRA is now rewarding the bank for progress made since December 2020.
In a statement, APRA said:
In recognition of the progress and improvements delivered by Westpac under CORE, APRA has halved the add-on to its operational risk capital requirement, effective immediately.
What's next?
APRA said the remaining $500 million capital add-on would remain in place until Westpac has completed its transition work and APRA has had time to assess those results.
In a statement, Westpac explained that the two capital overlays were applied in 2019 through an increase in risk-weighted assets.
The impact on Level 2 CET1 capital ratio as of 31 March was a reduction of 36 basis points.
Westpac said the removal of $500 million in capital risk overlay means the Common Equity Tier 1 (CET1) capital ratio would increase by approximately 18 basis points, reflecting a reduction in risk-weighted assets of $6,250 million.
CEO Peter King said:
Westpac is now a simpler, stronger bank with substantially improved risk governance. We have moved into the transition period, which involves sustainably embedding the uplift in risk management practices.
Westpac share price snapshot
Westpac shares are up 22% in the year to date compared to the ASX 200's lift of 4%.
