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APRA takes action against Bendigo and Adelaide Bank for breaching prudential standard on liquidity

Wednesday 21 October 2020

The Australian Prudential Regulation Authority (APRA) has increased Bendigo and Adelaide Bank’s minimum liquidity requirement for failing to comply with APRA’s authorised deposit-taking institution (ADI) prudential standard on liquidity. The breaches of APS 210 – Liquidity are historical in nature, and Bendigo and Adelaide Bank’s current liquidity position is comfortably above APRA’s minimum regulatory requirements.

Bendigo and Adelaide Bank informed APRA in September of multiple breaches of APS 210 stemming from IT coding that incorrectly classified some retail deposits in the most stable category of the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).1

The breaches, while material, do not impact the overall soundness of Bendigo and Adelaide Bank’s current liquidity position. However, they raise questions over the bank’s past risk management practices, and ability to accurately calculate and report its liquidity ratios.

To address these concerns, APRA will require a comprehensive review by an independent third party into the bank’s adherence with APRA’s liquidity requirements. APRA will also require Bendigo and Adelaide Bank to apply a 10 per cent add-on to the net cash outflow component of its LCR calculation, which will remain in place until the independent review is finalised and short-comings have been rectified to APRA’s satisfaction. 

APRA will also require the restatement of relevant disclosures made under APS 330 - Public Disclosure, for the preceding 24 month disclosure period.

APRA awaits the outcome of an internal Bendigo and Adelaide Bank review before determining whether further action is required.

APRA Deputy Chair John Lonsdale said: “APRA’s liquidity requirements are designed to ensure financial institutions have sufficient resilience to withstand an acute or longer-term stress scenario. Although Bendigo and Adelaide Bank’s breaches don’t impact the overall soundness of its liquidity position, APRA takes any breaches of its prudential requirements seriously.”

“In taking these actions, our priority is to ensure the underlying causes of the compliance failures are properly identified and addressed. It also sends a message to the wider banking industry that such breaches of our prudential standards are not acceptable, and APRA will respond in a commensurate manner, including applying penalties where appropriate.”

Footnote:

1 For more information on liquidity in banking, see: https://www.apra.gov.au/apra-explains-liquidity-banking
 

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The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6.5 trillion in assets for Australian depositors, policyholders and superannuation fund members.