Following on from the news that the bank had agreed to pay $35 million for breaching responsible lending regulations, Westpac has now outlined that it will be reducing its cash earnings by $245 million this year.
In a statement, the bank outlined that the key elements behind the reduction in cash earnings include:
- Increased provisions for customer refunds associated with certain advice fees charged by the group’s salaried financial planners due to “more detailed analysis going back to 2008”. These include where advice services were not provided, as well as where we have not been able to sufficiently verify that advice services were provided;
- Increased provisions for refunds to customers who may have received inadequate financial advice from Westpac planners;
- Additional provisions to resolve legacy issues as part of the group’s detailed product reviews;
- Provisions for costs of implementing the three remediation processes above; and
- Estimated provisions for recent litigation, including costs and penalties associated with the already disclosed responsible lending and BBSW cases.
As a guide, approximately two thirds of the impact is expected to be recorded as negative revenue while the remainder will be recorded in costs, Westpac said.
Costs associated with responding to the royal commission are not included in these amounts.
Westpac said further details of the provisions/costs are still being finalised and will provide more information when it releases its full year results in October.
It also said the program of reviews will continue into next year, which includes continuing to investigate and consider potential further costs associated with advice fees charged by its aligned planners.
“It is disappointing some of our past practices have not lived up to appropriate standards.
“We are committed to fixing any issue identified, as well as ensuring that any customer affected has not been disadvantaged,” said Westpac chief executive Brian Hartzer.