CBA Receives Additional $753 Million in Capital Requirement

The Commonwealth Bank of Australia (CBA) has been hit with an additional A$1 billion ($753 million) in capital requirement on Tuesday, as the Australian Prudential Regulatory Authority (APRA) determined that the bank’s success seemed to have weakened its senses, leaving itself vulnerable to several risks.

APRA stated in its review that CBA had a broad sense of complacency and that it was hasty in handling risks that were neither clearly understood nor owned, adding that it has not learn from its mistakes and has left itself exposed to non-financial threats, particularly in the operational and compliance area.  

The move came after Australia’s biggest lender was sued by the country’s financial intelligence agency for failing to comply with anti-money laundering laws. Drug dealers, terror financiers, and other criminals were found to have been able to use the bank’s systems to launder tens of millions of dollars.

The review adds more pressure on the board of CBA, following the resignation of chief executive Ian Narev in January, and further harms the reputation of Australia's top financial firms, which in recent weeks has suffered from an ongoing judicial probe concerning the banking sector’s misconduct.

The additional capital requirement, according to portfolio manager Omkar Joshi, was irrelevant for a bank with an A$800 billion balance sheet and that he believes that there is already enough problems for the CBA that it does not make any worse.

Australia's Big Four banks, which includes CBA, Westpac Banking Corp., National Australia Bank (NAB), and Australia and New Zealand Banking Group (ANZ), are facing stricter regulation and potential penalties as a result of the governance scandals.

APRA’s Recommendations

APRA chairman Wayne Byres said the bank itself has started to address many of its issues, but there is much to do and the risk that the same problems, which triggered the investigations, dim CBA’s efforts to significantly and effectively answer to recommendations of the panel.

APRA’s 35 recommendations included more closely linking executives' pay to exacting accountability standards, improving risk management and compliance operations, as well as changes in culture to ensure best actions in risk detection.

Byres said the A$1bn extra capital requirement would stay in place until the agency’s 

recommendations have been addressed.

The agency stated its supervisors will also be using the review to help with their supervision duties, and will expect banks to be able to show how they have considered the issues.

The report also warned that all banks’ governance standards would go through similar inquiry, seeing the errors committed at CBA amid plans to toughen penalties for corporate wrongdoing and oversight.

CBA said the report was a critical, but fair evaluation of the issues and that would implement all the recommendations. That has already started making changes at a board level to restore customer trust as well.

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