Westpac chief executive Peter King has hailed as “critical” the bank’s shift to a new operating model to bolster accountability, claiming that ensuring leaders have more clear ownership of the group’s businesses will sharpen execution at an important time for the bank and broader economy.
Releasing the bank’s culture, governance and accountability (CGA) reassessment in the wake of AUSTRAC’s allegations last year, Mr King told Westpac Wire the “lines of business” model being rolled out across the bank would help clarify accountability and compliment a new program announced today to strengthen shortcomings in the management of non-financial risk.
Dubbed CORE (Customer Outcomes and Risk Excellence), the program has 14 workstreams under three pillars – one being “accountable and empowered people” – and is slated to be delivered by March 2022, with public updates along the way. The program replaces and builds on work in train to address the 45 recommendations in the bank’s initial CGA self-assessment in 2018, which was done following a request from the regulator of several financial services organisations.
Mr King, who was confirmed as CEO three months ago, said a more comprehensive program was required after the CGA reassessment found similar shortcomings to the initial CGA report, including that the bank creates too much complexity, has an immature and reactive risk culture in non‑financial risk management, and challenges executing and staying the course.
“The CGA reassessment and the AUSTRAC matter are highlighting consistent themes that we need to resolve,” Mr King said.
“(And) The first CGA was really about delivering on 45 initiatives. This time we are going to deliver on initiatives, but we want to focus on three particular moves as well.
“The first relates to tone from the top. The second piece is about risk decisioning, so being really clear on the boundaries within which people make decisions. And the final piece is accountability and our lines of business move from an operating structure perspective is critical in improving accountability.”
Mr King said the transition to the lines of Business model – which is underway and makes leaders accountable for end-to-end business management, including risk, financial performance and customer outcomes – was key to delivering on the third pillar of the CORE program to improve accountability and, ultimately, performance.
“We need to simplify the processes. We need to simplify the customer outcomes and the outcomes for team members as well,” he said.
“What (lines of business) means is we'll have a leader say, looking after home ownership or mortgages, who is responsible end to end. That hasn't always been the case in the bank with distribution run differently from product, from technology and ops. So, we're really looking at bringing the end to end processes together, controls together, so we manage it better.”
The shift comes as the nation experiences its first recession in almost 30 years following the COVID-19 pandemic, which has prompted a fresh lockdown of Melbourne to contain the recent spike in infections.
After the banks last week announced that some customers on loan repayment deferrals may be eligible for extensions, Mr King said customers who could restart repayments should do so, while other situations would be worked through on a case by case situation. He added that despite the uncertainty relating to the virus and fresh outbreaks in Victoria and NSW, the banking industry was well placed to deal with challenges after entering the crisis in a strong position in terms of capital levels and funding.
“Why that's important is it gives us time to deal with these challenges,” he said, adding it was too early to tell the impact of the Melbourne lockdown.
According to APRA data of the 20 largest deposit-taking institutions in the country, $266 billion of loans – or almost 10 per cent of the total outstanding – had been granted temporary repayment deferrals as at 31 May, with home loans making up $192bn.
“We're in the middle of the three-month check in process… and the first thing we're doing is encouraging people where they can to start repaying," Mr King said. "That's in the bank's interest and customers’ interests. Where they're unable to do that, the extension of the repayment holidays really gives us time to work through at an individual customer level, what is the right response for individual customers.”