APRA has removed a liquidity overlay imposed on Westpac two years ago, when it found the bank had breached its prudential liquidity standard, saying in a statement yesterday that the bank has completed a liquidity risk management remediation program.

The breaches related to incorrect treatment of specific funding and loan products for the purposes of calculating the bank’s liquidity coverage ratio. The problems occurred predominantly at Westpac New Zealand.

Under the LCR rule introduced in 2015, ADIs must maintain an adequate level of high-quality liquid assets that can be converted into cash to meet liquidity needs for 30 days. 

To determine the appropriate LCR, banks must estimate their net cash outflow over 30 days under stressed conditions, with higher runoff rates to apply to less stable deposits.

The regulator said at the time that the breaches “demonstrate weaknesses in risk management and oversight, risk control frameworks and risk culture”.

In December 2020, it applied an overlay on the bank’s liquidity requirements by adding a 10 per cent increase to estimated net cash outflows.

And it ordered the bank to bring in an independent third party to review its compliance with liquidity reporting requirements.

“Westpac has since completed a program to remediate findings from an independent review into Westpac’s liquidity risk management to APRA’s satisfaction,” APRA said in a statement.

Westpac said the removal of the overlay will contribute around 13 percentage points to its LCR, which was 130 per cent in the June quarter.

APRA said a capital requirement add-on of A$1 billion to reflect Westpac’s heightened operational risk profile remains in place.