Australia's Westpac Banking Corp <WBC.AX> said on Wednesday its 2020 profit would be hit by a rise in costs related to improving risk management systems in the wake of a money-laundering scandal and the country's deadly bushfires.
Westpac, which previously expected a 1% increase in costs for the year, said those projections would likely increase due to better risk management practices in response to regulatory pressure in the aftermath of accusations including the facilitation of offshore payments relating to child exploitation.
"Westpac remains committed to materially lifting its approach to risk management. As a result, we are identifying further issues to address," the Sydney-based bank said in a limited capital update.
The country's No. 2 bank said since AUSTRAC, Australia's financial crime watchdog, sued it for 23 million alleged breaches of anti-money laundering laws in November "the number of regulatory investigations and reviews into the Group’s businesses has risen".
The bank was now prioritising the screening and reporting of transactions indicative of child exploitation to AUSTRAC within 24 hours, and expected to develop and fund a A$30 million "impact framework" programme to "address child safety and human rights" the statement said.
"The Group expects to incur additional expenses in FY20 associated with this work and will need to reconsider its current cost growth expectations."
Westpac also pegged insurance claims for calamities, including the bushfires and hailstorms earlier this year, at A$140 million before taxes ($93.60 million) and said bushfire relief for customers would cost it an additional A$26 million, which would be booked in the second half of fiscal 2020.
"Bushfires, storms and coronavirus are expected to have an economic impact which may ultimately affect banking activity and growth," the bank said in a limited trading update.
Devastating wildfires in Australia and the coronavirus outbreak threaten growth prospects, including that of China, Australia's largest trading partner.
Westpac's revised cost projections would be unveiled when it reports its half-year results in May, it said.
On top of the challenges facing the country's banks, such as low interest rates and increased regulatory scrutiny following a scathing misconduct inquiry into the sector, Westpac is also facing a potentially massive fine related to the money-laundering scandal.
The country's top financial regulators, the Australian Securities and Investments Commissions (ASIC) and the Australian Prudential Regulation Authority (APRA) were both conducting its own investigations into the matter, the lender said.
As of the end of 2019, Westpac's common equity tier one capital ratio stood at 10.8%, only 1 basis point higher than what it was on Sept. 30, as it was dragged down by a A$500 million in extra capital required by the banking regulator due to AUSTRAC's claims.
Besides a civil penalty, the bank also expects higher litigation and regulatory investigation expenses in the year, it said.
(Reporting by Nikhil Kurian Nainan and Rushil Dutta in Bengaluru; Editing by Anil D'Silva, Shailesh Kuber and Lincoln Feast)
