AFIN8003 Individual Assignment Sample

1. Introduction and BOQ Profile

1.1 BOQ’s Profile

One of Australia's financial institutions, Bank of Queensland (BOQ), provides both corporate and individual retail banking solutions in addition to individual retail banking products. Because of BOQ's strong regional presence, digital banking technologies are constantly being improved, and a solid, safe banking framework is being developed. The digital changes are demonstrating a commitment to managing a multi-risk program and safeguarding the global financial system. As well-known Australian financial institutions, they are in charge of governance, risk management, and money laundering.

Additionally, it emphasises the work being done to provide complete succession elements that will protect the financial structure. In addition, risk management is reflected in BOQ's profile, which highlights the digital transformation program and upholds corporate governance infrastructure[1]. BOQ must nominate an impersonal analyst who has been supported by APRA to supply an estimation of the appropriateness of the disciplinary action program and an update on BOQ's performance of the agenda.

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2. BOQ’s CEU Analysis

2.1 Explanation of CEU context

The CEU was set up in response to the noncompliance and to fulfill the requirements set out by the Australian Prudential Regulation Authority (APRA) to preserve other regulatory organizations. In order to regulate the regulatory authority in conjunction with other regulatory authorities, the Customer Experience Unit (CEU) study of the Bank of Queensland (BOQ) describes a complete framework to comprehend particular circumstances of regulatory violations involving the money laundering process[2]. The regulatory violations raise concerns about governance and money laundering in particular. This operational supervision gap in BOQ's internal business performance controls is the root cause of these regulatory violations.

2.2 Implications analysis

The BOQ's operational implementation of the considerable business growth for remedial measures, such as the risk management system, improved governance procedures, and the development of a framework connected to compliance is significantly affected by the breaches. The cost and supplementary charges in compliance are contingent upon internal corporate rules and their influence on public perception, which may enhance customer acquisition and retention. The expenses associated with rectifying regulatory transgressions, including fines and penalties impact BOQ.

2.3 Stock market response

The way the financial markets have responded to recent breaches indicates that investors are growing more and more concerned about them. This was partially due to the market's concern about potential long-term financial harm, which is why it caused BOQ's share price to decline after learning about CEU and then learning about its regulatory issues. Investor reaction was negative due to the BOQ regulatory compliance difficulties and the costs of correcting a violation[3]. Data on stock prices showed that the market immediately fell as it processed this information before progressively rising over time once more when it appeared that these specific problems were being resolved. Investor trust gradually recovered despite the initial fall because of BOQ's dedication to fixing these issues. This served to allay worries about the market by focused

3. Performance and Compliance Analysis

3.1 Financial Performance Analysis

Figure 1: Calculations of Financial Ratios

For the fiscal years 2021–2023, the ROE was determined to be 27, 27.17, and 26.60. According to calculations, the ROA for BOQ over the fiscal years 2021–2023 is 1.83, 1.85, and 1.79. The previous three fiscal years' corresponding net profit ratios are 70.47, 67.73, and 33.26, respectively. Over the last three years, the Bank of Queensland's (BOQ) financial performance has been mixed and affected by external market conditions as well as internal issues.

Two key metrics, Return on Equity (ROE) and Return on Assets (ROA), indicate how efficient the bank is at generating profit from equity & assets[4]. Its ROE has ebbed around 10% largely due to regulatory headwinds and the emergence of previously hidden costs that have made for a less profit-generating entity. The ROA has returned to almost its original level suggesting that despite maximum profitability limitations, the bank managed its assets effectively[5].

3.2 Regulatory Compliance Analysis

The BOQ's regulatory compliance particularly attractive capital sufficiency and liquidity management is essential for regulatory compliance. The Common Equity Tier 1 (CET1) ratio represents the amount of capital the bank has versus risk-weighted acquisitions to exceed regulatory minimums, increasing financial stability comfortably. The bank's Tier 1 capital ratio also comprises CET1 and supplementary Tier 1 capital is at a profitable company to immerse any failures. The bank's Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) have remained comfortably surpassing regulatory entries.

BOQ's liquidity management framework is designed to ensure that it maintains appropriate levels of liquidity while managing its risk circumstances. These results indicate that BOQ's capital sufficiency ratios and liquidity metrics remain within sufficient bounds at the beginning of regulatory barriers, offering investors assurance in the company's monetary equilibrium. Future implementation could be influenced by operating complications and additional regulatory scrutiny.

4. Risk Management and Capital Adequacy

4.1 Discussion of risk management

The risk administration methods employed by the Bank of Queensland (BOQ) have varied enormously and significantly since the Customer Experience Unit (CEU) was specified. Historically, BOQ has worked with governance-related difficulties and anti-money laundering (AML) observation, which has damaged the company's picture and rendered functional inefficiencies. The framework for controlling credit risk and market risk at BOQ has been supported, underscoring the advancement of internal commands, management, and risk mitigation practices.

The penalty associated with financial transactions and the abundance of subpar banking services can contribute to operational risk. The bank placed a multi-year risk schedule that prioritises growing risk surveillance at all organisational groups, operating stability, and regulatory observation[6]. This has implicated enhancing data administration and security conventions, as well as modernising strategies for determining and eliminating financial misconduct. BOQ has assembled improvement in its capability to operate both internal and external dangers more virtually, specifying more substantial grounds for future strength[7]. This has been performed by concentrating on functional susceptibility and aligning better closely with regulatory examples.

4.2 Impact of APRA’s intervention

Figure 2: The Impact of Statutory Adjustments

(Source: [8])

Both short- and long-term consequences resulted from the Australian Prudential Regulation Authority's (APRA) important measure on BOQ. The bank's disregard for government management and anti-money laundering procedures is considered as additional regulatory compliance benchmarks required for APRA's review[9]. Because of the increasing regulatory demands and tighter scrutiny enforced by APRA, BOQ was forced to accept corrective actions that had an immediate consequence on its methods. The profitability of the bank was impacted financially by the rising expenditures of compliance to combined operating specialised subsidiaries and expanding risk administration strategies.

Furthermore, the interference generated a stained standing among investors and consumers, which might impact consumer investment and retention[10]. Nevertheless, APRA's participation also had profitable long-term consequences on BOQ. The regulatory body helped the bank in realigning its operating system and risk framework by permitting it to appear as an additional robust and respectful community by assessing more satisfactory groups of governance and risk administration[11]. By positioning BOQ in a more assertive function to address regulatory barriers in the hereafter the corrective endeavours have boosted the company's commitment to operating clearness and long-term monetary equilibrium.

Capital Ratios and RWA Responses

Figure 3: Capital Adequacy

(Source: [12])

The problems obtained by APRA's involvement, and BOQ's capital adequacy demarcated by standards like the Common Equity Tier 1 (CET1) ratio and Tier 1 capital ratio have remained within regulatory limitations. A significant measurement of engagement is the CET1 ratio which offers the bank's core capital holdings in consonance with its risk-weighted assets (RWA). Additionally, to, ensure observance with APRA's fund's adequacy regulations, BOQ supplemented its capital protection in reaction to regulatory scrutiny[13]. This enhanced the bank's monetary equilibrium in addition to administering it in fascinating possible casualties. BOQ has preserved a powerful capital function as conducted by the Tier 1 capital ratio which assumes into understanding of both CET1 capital and supplementary Tier 1 capital.

4.3 Scenario analysis

The bank's capital appointment may be extremely damaged in the improbable occasion that BOQ's CET1 ratio drops as a consequence of a considerable advancement in risk-weighted assets (RWA) carried on by higher-risk lending procedures[14]. For example, to maintain its CET1 ratio at the suitable regulatory status, BOQ would be required to increase capital if RWA expanded by 20%. The bank would demand an additional $500 million in core equity to support the same ratio, considering the current CET1 ratio of 10% and a $5 billion upgrade in RWA. If this capital is not increased, there may be penalties from the administration a decrease in investor enthusiasm, and higher borrowing rates[15].

5. Conclusion

In this research, the Bank of Queensland (BOQ) demonstrates important findings concerning its enhancements in risk administration, particularly after the outcome of the CEU and the regulatory activity accepted by APRA. It also spotlights the actions being created to designate complete succession elements that will defend the financial establishment. Despite confronting operating and economic difficulties, BOQ enhanced capital adequacy and liquidity leadership by maintaining its management and compliance configurations.

Capital ratios like Tier 1 and CET1 were within statutory bounds despite exceeding stress. One meaningful takeaway is how necessary foreseeing risk administration and regulatory observance are to maintain the banking industry's economic equilibrium and investor confidence. The digital transformations demonstrate a commitment to multi-risk schedule administration and global economic approach conservation. Being well-known financial associations in Australia their commitments incorporate risk administration, money laundering, and administration.

Reference list

• apra.gov.au, 2024, Data Statistics. Available at: https://www.apra.gov.au/statistics-and-reporting [Accessed on: 15th October, 2024]
• apra.gov.au, 2024, Objectives and Key Requirements. Available at: https://www.apra.gov.au/sites/default/files/APS%2520210%2520FINAL.pdf [Accessed on: 15th October, 2024]
• Baldwin, K., Alhalboni, M. and Helmi, M.H., 2019. A structural model of “alpha” for the capital adequacy ratios of Islamic banks. Journal of International Financial Markets, Institutions and Money, 60, pp.267-283.
• boq.com.au, 2024, Capital Ratios. Available at: https://www.boq.com.au/content/dam/boq/files/shareholder-centre/financial-results/2022/annual-report-2022.pdf [Accessed on: 15th October, 2024]
• Dao, B., 2020. Bank capital adequacy ratio and bank performance in Vietnam: A simultaneous equations framework. Journal of Asian Finance, Economics and Business, 7(6), pp.039-046.
• fastercapital.com, 2024, Capital Requirements. Available at: https://fastercapital.com/content/Capital-Requirements--Risk-Weighted-Assets-and-Capital-Ratios--Demystifying-Bank-Capital-Requirements.html#Introduction-to-Bank-Capital-Requirements [Accessed on: 15th October, 2024]
• hbs.edu, 2024, Operational Risk Capital. Available at: https://www.hbs.edu/behavioral-finance-and-financial-stability/Documents/2016-06%20Rethinking%20Operational%20Risk%20Capital%20Requirements.pdf [Accessed on: 15th October, 2024]
• Irawati, N., Maksum, A., Sadalia, I. and Muda, I., 2019. Financial performance of indonesian’s banking industry: the role of good corporate governance, capital adequacy ratio, non performing loan and size. International Journal of Scientific and Technology Research, 8(4), pp.22-26.
• Kowalewski, O. and Śpiewanowski, P., 2020. Stock market response to potash mine disasters. Journal of commodity markets, 20, p.100124.
• Le, C.H.A., Shan, Y. and Taylor, S., 2020. Executive compensation and financial performance measures: Evidence from significant financial institutions. Australian Accounting Review, 30(3), pp.159-177.
• Liu, H., Wang, Y., He, D. and Wang, C., 2020. Short term response of Chinese stock markets to the outbreak of COVID-19. Applied Economics, 52(53), pp.5859-5872.
• mckinsey.com, 2024, Capital Ratios. Available at: https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/risk/working%20papers/15_capital_ratios_and_financial_distress.pdf [Accessed on: 15th October, 2024]
• Rouleau, G., Gagnon, M.P., Côté, J., Richard, L., Chicoine, G. and Pelletier, J., 2022. Virtual patient simulation to improve nurses’ relational skills in a continuing education context: a convergent mixed methods study. BMC nursing, 21(1), p.1.
• wcsecure.weblink.com, 2024, Integrated Risk Program. Available at: https://wcsecure.weblink.com.au/pdf/BOQ/02671249.pdf [Accessed on: 15th October, 2024]
• [1] apra.gov.au, 2024, Data Statistics. Available at: https://www.apra.gov.au/statistics-and-reporting [Accessed on: 15th October, 2024]
• [2] apra.gov.au, 2024, Objectives and Key Requirements. Available at: https://www.apra.gov.au/sites/default/files/APS%2520210%2520FINAL.pdf [Accessed on: 15th October, 2024]
• [3] Baldwin, K., Alhalboni, M. and Helmi, M.H., 2019. A structural model of “alpha” for the capital adequacy ratios of Islamic banks. Journal of International Financial Markets, Institutions and Money, 60, pp.267-283.
• [4] Dao, B., 2020. Bank capital adequacy ratio and bank performance in Vietnam: A simultaneous equations framework. Journal of Asian Finance, Economics and Business, 7(6), pp.039-046.
• [5] wcsecure.weblink.com, 2024, Integrated Risk Program. Available at: https://wcsecure.weblink.com.au/pdf/BOQ/02671249.pdf [Accessed on: 15th October, 2024]
• [6] fastercapital.com, 2024, Capital Requirements. Available at: https://fastercapital.com/content/Capital-Requirements--Risk-Weighted-Assets-and-Capital-Ratios--Demystifying-Bank-Capital-Requirements.html#Introduction-to-Bank-Capital-Requirements [Accessed on: 15th October, 2024]
• [7] hbs.edu, 2024, Operational Risk Capital. Available at: https://www.hbs.edu/behavioral-finance-and-financial-stability/Documents/2016-06%20Rethinking%20Operational%20Risk%20Capital%20Requirements.pdf [Accessed on: 15th October, 2024]
• [8]boq.com.au, 2024, Capital Ratios. Available at: https://www.boq.com.au/content/dam/boq/files/shareholder-centre/financial-results/2022/annual-report-2022.pdf [Accessed on: 15th October, 2024]
• [9] Irawati, N., Maksum, A., Sadalia, I. and Muda, I., 2019. Financial performance of indonesian’s banking industry: the role of good corporate governance, capital adequacy ratio, non performing loan and size. International Journal of Scientific and Technology Research, 8(4), pp.22-26.
• [10] Kowalewski, O. and Śpiewanowski, P., 2020. Stock market response to potash mine disasters. Journal of commodity markets, 20, p.100124.
• [11] Le, C.H.A., Shan, Y. and Taylor, S., 2020. Executive compensation and financial performance measures: Evidence from significant financial institutions. Australian Accounting Review, 30(3), pp.159-177.
• [12] boq.com.au, 2024, Capital Ratios. Available at: https://www.boq.com.au/content/dam/boq/files/shareholder-centre/financial-results/2022/annual-report-2022.pdf [Accessed on: 15th October, 2024]
• [13] Liu, H., Wang, Y., He, D. and Wang, C., 2020. Short term response of Chinese stock markets to the outbreak of COVID-19. Applied Economics, 52(53), pp.5859-5872.
• [14] mckinsey.com, 2024, Capital Ratios. Available at: https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/risk/working%20papers/15_capital_ratios_and_financial_distress.pdf [Accessed on: 15th October, 2024]
• [15] Rouleau, G., Gagnon, M.P., Côté, J., Richard, L., Chicoine, G. and Pelletier, J., 2022. Virtual patient simulation to improve nurses’ relational skills in a continuing education context: a convergent mixed methods study. BMC nursing, 21(1), p.1.

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