APRA Review of Risk Governance and breach of Liquidity

ASX
Release

1 December 2020


Update on APRA’s Review of Westpac’s Risk Governance and breach of Westpac’s
Liquidity Requirements

On 17 December 2019, APRA initiated a review program into Westpac’s risk governance. APRA
has now notified Westpac 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 CEO Peter King said, “We acknowledge the findings of APRA’s review and accept the
need to work faster to address our shortcomings.”

These outcomes are broadly consistent with the findings of Westpac’s Culture Governance and
Accountability reassessment report released on 17 July 2020. We have commenced a number
of risk programs to address these issues which are summarised in the Group’s Full Year 2020
reporting.

APRA has indicated that Westpac has not demonstrated the expected improvements from these
programs and that a more holistic and integrated program addressing the full scope of financial
and non-financial risk issues, and their root causes, is required. APRA also requires stronger
assurance over delivery.

As part of the next steps, Westpac expects to enter into an enforceable undertaking over risk
governance remediation. Westpac will work constructively with APRA on the detail of the
enforceable undertaking and we expect to update the market when it is finalised.

APRA has also announced today it is taking action for breaches of our liquidity requirements
predominantly relating to Westpac New Zealand Limited (WNZL) (outlined in WNZL’s Disclosure
Statement). While the breaches have been rectified, and Westpac Group would have still
continuously met its liquidity ratio minimums, Westpac Group had breached the prudential
standards. Specifically, as a material offshore subsidiary WNZL’s liquidity coverage ratio (LCR)
would have been below 100% for much of 2019.

Westpac’s LCR for the September quarter 2020 was 151%.

APRA has indicated that Westpac has material weakness in its liquidity processes and control
framework. Accordingly, APRA is requiring:
• An external review of our liquidity compliance arrangements and the effectiveness of the
implementation of the recommendations of our Compliance Plan Review;
Level 18, 275 Kent Street
Sydney, NSW, 2000

• An overlay on the Group’s liquidity requirements by applying 10% increase to the
Group’s net cash outflows. This overlay will be in place until the shortcomings have
been rectified. This overlay will apply from 1 January 2021 and if applied today would
reduce the Group’s LCR by around 10 -15 percentage points; and
• An accountability review.




For further information:

David Lording Andrew Bowden
Media Relations Investor Relations
M. 0419 683 411 M. 0438 284 863
P. +612 8253 4008
ENDS



This document has been authorised for release by Tim Hartin, General Manager & Company
Secretary.