Westpac chairman John McFarlane has acknowledged shareholders’ disappointment over dividends but argued the scrapped first half dividend did not matter due to a regulator’s order.

Mr McFarlane and executives at the bank’s annual general meeting on Friday vowed to do better after a tumultuous 12 months in which Westpac was fined $1.3 billion for breaching anti-money laundering laws between 2013 and 2018.

Mr McFarlane was also wary of frustration over payouts.

“I am conscious how important dividends are to individual shareholders and know how unhappy you have been about the decision not to pay a first half-dividend as well as the lower dividend for the year,” he said.

Westpac postponed a decision on paying first-half dividends before opting not to do so.

“That said, it didn’t really make any difference,” Mr McFarlane said of the decision.

The Australian Prudential Regulatory Authority had urged banks to consider lower dividends as it wanted to ensure stability of banks during the pandemic.

In July, it ordered payouts be below 50 per cent of full-year earnings.

Westpac paid a full-year dividend of 31 cents per share.

“In the end, we were required to pay out no more than 50 per cent of statutory profits and that’s what we paid,” Mr McFarlane said.

“Going forward, I’m hopeful we will return to a more consistent dividend each half,” he said.

Chief executive Peter King named fixing the bank’s risk management as his top priority in the wake of the money laundering scandal, after a blast from APRA last week.

Mr King said addressing Westpac’s shortcomings in risk was critical, and he accepted the need to work faster, as per the finding of an APRA review.

Westpac executives and APRA have formed a legal agreement on measures the bank will take to improve risk controls.

Mr King said simplifying the bank was a second priority and that the recent sales of the insurance and Pacific businesses showed progress.

His third priority was improving performance, which will be done by focusing on better returns and lowering costs.

Mr McFarlane named COVID-19, the $1.3 billion fine and a weaker economy as major forces in the past 12 months.

“It’s clear we need to change substantially the way Westpac operates,” he said.

Shares were lower by 0.28 per cent to $19.93 at 1416 AEDT.