APRA slashes CBA capital requirement by $500m

The prudential regulator has halved the $1 billion capital requirement slapped on the Commonwealth Bank of Australia after significant progress has been made in fixing systemic failures in its governance and culture.

The Australian Prudential Regulation Authority enforced the capital add-on to CBA in May 2018 as part of an inquiry into the bank's culture following a series of scandals, including poor advice, major anti-money laundering breaches, fee errors and dodgy insurance.

CBA boss Matt Comyn says there is still more work to do on improving the bank’s culture. Credit:Louise Kennerley

A report by independent consulting firm Promontory found the bank had a reactive stance to non-financial risks, a widespread sense of complacency and overly collegial working environment which prevented constructive criticism and a focus on outcomes.

Promontory has since conducted quarterly reviews to monitor CBA's progress and its eighth report found there is now "clear and committed leadership from the top" to non-financial risks and a much clearer focus on ensuring good customer outcomes.

APRA said the report indicated CBA has made "significant progress" in areas such as management and compliance, remuneration and risk culture although there remained a long way to go.

"A substantial body of work is needed to ensure the improvements are fully embedded across the whole CBA Group," APRA said.

The remaining $500 million capital requirement will remain in place until CBA addresses all of Promontory's recommendations.

CBA chief Matt Comyn welcomed the regulator's acknowledgement of the bank's progress in a statement to the ASX on Friday morning. "At the same time, we and APRA recognise there is still a substantial amount of work to do before our Remedial Action Plan is fully implemented and embedded across CBA.

"We remain committed to achieving these outcomes and to ensuring the improvements to strengthen governance, accountability and risk culture frameworks, practices and outcomes are sustained."

Morningstar banking analyst Nathan Zaia said CBA was already sitting on "quite a lot of surplus capital" and predicted there would be spending spree in the next few years.

"Once the future becomes a little less uncertain, there's a strong case to be made for some sort of capital initiatives to take place," Mr Zaia said. "This adds to that pile, whether it's a special dividend or buyback."

CBA was criticised by proxy firm ISS in October ahead of the bank's annual general meeting for tying bonuses to progress on fixing misconduct. The most heavily weighted measure (30 per cent) for Mr Comyn's $3.4 million bonus was the bank’s ability to meet milestones set out by Promontory's report.

"What are you paying for? For fixing stuff you did wrong that caused shareholder losses through fines and legal costs in the first place?" ISS head of research Vas Kolesnikoff said.

The bank then narrowly avoided a first strike over pay, copping a 21 per cent protest vote over the company's remuneration report.

CBA shares closed at a more-than eight-month high of $78.87 on Thursday and are now down just 1.3 per cent for the year. The bank's share price bottomed out at $53.44 in March.

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