For more than a decade regulators have viewed National Australia Bank as the most risky of the country’s major banks in terms of its operational risks.
The 2004 currency trading scandal, chronic overcharging of customers at its British banking arm and regular technology outages in its Australian business meant that NAB always had to put aside extra reserve cash to cover against potential losses arising from internal failures.
However, in the last year NAB appears to have passed the title of Australia’s most accident-prone financial institution to the Commonwealth Bank.
Recent degradation of the CBA’s electronic services top off a horrible twelve months for the bank’s customers and the executive team led by Ian Narev.
In times past, CBA’s efficient and reliable technology laid a foundation for it to dominate the local retail banking market.
Today, its error-riddled online platforms seem destined to drive customers away.
Friday’s outage, which stranded thousands of consumers at merchant counters with no access to the EFTPOS network to pay for petrol and groceries, is the latest in a wave of disruptions going back to June.
Only a few weeks ago the bank was apologising for another meltdown that caused customers’ credit card accounts to be double-charged each time they made a purchase.
The profile of the CBA in terms of its operating risks has never looked so poor, especially when other failings are accounted for, such as the financial advice fiasco and the bribery allegations levelled against former staff in the technology division.
Expect more disruptions
Payments experts told The New Daily that consumers and small businesses should expect more disruptions to online banking systems over the next three years as the big banks try to overhaul out-dated technology platforms.
So far this year there have been eight technology crashes that have paralysed banking services at the four major banks.
Jost Stollmann, the chief executive of emerging EFTPOS services provider Tyro Payments, blames the banks for the instability of Australia’s online networks.
“The banks have ageing and archaic IT systems that are expensive to maintain and prone to collapse,” he says.
“For too long, banks have starved the payment infrastructure of innovation and investment.
“Australia’s banking IT systems have the reliability of a 1970s Leyland PT76, when customers deserve a 21st century BMW.”
Business groups also warned that unreliable banking services would come at a big cost to the economy and small retailers.
Jos de Bruin, the CEO of the Master Grocers Association, which represents almost 3000 food retailers across the country, says small businesses are losing patience with the CBA and other banks.
“The banks provide an incentive for consumers to use credit cards and they charge retailers like our members for that service,” Mr Bruin says.
“Our members generate around $14 billion in sales each year and they rely on the financial system to be in tip-top shape to facilitate payments.”
Will the regulator step in?
In 2012 the Reserve Bank and the Australian Prudential Regulation Authority raised their concerns with the banks about the potential for regular technology failures to injure the Australian economy.
The regulators later tightened requirements for banks to report the reasons for systems failures.
But the RBA also put the banks on notice, intimating in a report that it may introduce tougher regulatory measures in the future.
That CBA’s systems have become unpredictable is especially worrying for the regulators and business groups.
Outages of CBA’s banking systems have a greater potential to undermine the Australian economy because the bank is the largest EFTPOS provider in the country, accounting for 30 per cent of all retail terminals.
If the disruptions persist, APRA may be forced to ask CBA to increase the amount of capital it puts aside to cover for the losses and litigation that might flow from operational failures.
At some point, Australian businesses might also begin to consider why they should be asked to absorb sales losses when banks screw up.
At present most of the regulatory capital of the major banks is earmarked to cover the risk of borrowers not repaying their loans.
Operational risk, which regulators define as the “risk of economic loss arising from failed internal processes and people”, currently accounts for only 10 per cent of the bank’s regulatory capital.
In light of recent debacles at Commonwealth Bank, APRA might decide that it is time for the company to stump up more cash to protect its business from self-inflicted wounds.